The city of Whitefish has laid off four employees and will furlough all other city workers for one day before the end of the fiscal year to offset a faltering general fund.

An immediate hiring freeze also has been imposed, along with freezes on all out-of-state travel and training and departmental capital outlays.

In a memorandum issued Tuesday to the city staff and Whitefish City Council, City Manager Chuck Stearns said the combination of a continued decline in planning and building permit and fee revenue, the payment of the Walton lawsuit judgment of nearly $400,000 and a higher level of property-tax protests and delinquencies has “dramatically diminished” the city’s financial condition.

“It really was the Walton lawsuit which greatly affected our cash-flow problems,” Stearns said in the memo. “Without the Walton judgment, I think we could have made it to June 30 without such significant actions, but that may have also just been delaying inevitable actions.”

The city late last year lost a lawsuit filed by William and Theodora Walton over construction on steep slopes when the Montana Supreme Court upheld a Flathead District Court ruling that found the city violated the Waltons’ right to equal protection.

After reviewing the city’s six-month financial report, Stearns said it now appears imminent the city will end its fiscal year on June 30 with a negative cash balance in the general fund.

The city can do some interfund borrowing or short-term borrowing, but there wasn’t any way to avoid the layoffs and cutbacks, Stearns said.

Employees affected by the indefinite layoffs include planner Nikki Bond, building inspector Phil Holmes, planning and building technician/clerk Marion McLeary and customer-service clerk Connie Morrison. The layoffs were effective at the end of the day on Friday.

“It is my hope that we can bring some or all of these people back later this year if revenues improve, but there are no guarantees,” Stearns said.

All other employees will be required to take one unpaid furlough day between now and June 30.

At the end of December 2009, the city’s general-fund cash was about $700,000 less than the December figure of the preceding three years.

And while the Walton judgment “exacerbated” the city’s budget woes, there also are systemic problems with lagging revenues in the building and drug-forfeiture funds, Stearns said.

He stressed that the reductions will affect service levels.

“Waits for service will be longer, less will get done and everyone should adjust their expectations of what to expect from city services,” Stearns said.

Features editor Lynnette Hintze may be reached at 758-4421 or by e-mail at lhintze@dailyinterlake.com