Bellingham and Whatcom County leaders say details are falling into place for a reorganization of Medic One even as they confront a $1.1 million budget shortfall.

The budget gap was created by three factors, county Executive Jack Louws said: reduced reimbursements from Medicare and Medicaid, lagging sales tax revenue, and wage increases that came out of the most recent labor agreement with the Bellingham Fire Department.

The gap will be filled with money in Medic One's reserve fund, which will shrink from about $4 million to $3 million.

"When you start with $4 million and you burn $1 million in a year, you've got a few short years before you're in trouble," Louws said.

Medic One handles the most life-threatening 911 calls in the county.

The shock to the budget, presented to the County Council on Thursday, Nov. 1, likely won't be an isolated event, Bellingham Mayor Kelli Linville said.

"Without any adjustments, we have to look at it happening year after year," Linville said. "Our financials are probably fine through 2015, but we're going to have to figure out ... how we maintain our service levels and contain our costs with the revenues we have."

Medic One is supported by user fees, a sales tax levy, and the city and county general funds. If fees and taxes can't keep up with rising costs, the city and county might need to subsidize the program more than they do now.

Of the $7.9 million in revenue Medic One expects in 2013, the county will contribute $1.4 million and the city will add $1.1 million. Both are raising their funding by 1 percent from 2012.

In addition to preserving the unified city-county system, the reorganization may hold down escalating costs, officials say. Linville said she would like to see whether the reorganization results in cost efficiencies before digging deeper for ways to keep the system financially viable.

"I certainly want to see how that works before we begin the actual strategic planning to keep the system afloat," she said.

Medic One was on the verge of splitting into separate county and city operations in 2010, an outcome that practically everyone involved had said would be bad for both the quality and the cost of response. But county officials who were frustrated over their lack of control over the program were calling for an end to the contract that governed Medic One's operations.

Under the new plan, the city would continue to run the day-to-day operation of emergency medical services. But decisions about everything from operations to the budget would be handled by a new oversight board with county and city representation that would make recommendations to both councils.

Officials involved in the reorganization credit Louws and Linville for re-energizing the effort to keep Medic One intact. Both began their terms this year.

"Having new leadership in both the city and the county has created some opportunities to look at issues with fresh eyes and with fresh personalities, and with no history of animosity," County Council member Ken Mann said. Mann voted against the decision in late 2010 to let the city know the county would end the Medic One contract. At the time, he was concerned the move would result in the breakup of the system.

The progress made this year has made Mann more optimistic. But looming on the horizon for Medic One decision makers is whether the system's reputedly high level of service will need to be reduced.

"I think we're going to have a unified system," he said. "At a certain point we need to have the discussion of how much it is going to cost, and what are we willing to pay."

Reach RALPH SCHWARTZ at ralph.schwartz@bellinghamherald.com or call 360-715-2289. Read the Politics Blog at blogs.bellinghamherald.com/politics.