A city manager of an Oregon town rocked by a budget crisis had to have known the city was dipping into reserves to pay its operating expenses, an investigator says.

OAKRIDGE — A city manager of an Oregon town rocked by a budget crisis had to have known the city was dipping into reserves to pay its operating expenses, an investigator says.

Oakridge, a Cascade Range timber town of 3,700 that's trying to become a center for mountain biking, has been in turmoil for months over revelations its municipal government was in desperate straits, having run through $1 million in reserves in two years.

So far, 12 employees have been laid off, a third of the city's staff, and the town has been borrowing against future revenues to meet its expenses. Its budget is expected to suffer for years, and a local leader said Thursday it could mean bankruptcy, the Eugene Register-Guard reported.

At a town meeting in the high school auditorium, about 100 residents and four members of the City Council heard preliminary findings from Tiffany Couch, a forensic accountant and fraud investigator from Vancouver, Wash., hired by the city to look at the books for the past 28 months.

Couch said expenditures appear to be for city business, ruling out fraud or embezzlement.

She said she found five large transfers from a reserve fund between July 2010 and June 2011, draining it from about $970,000 in July 2010 to $3,634.

Couch said the transfers would have required a phone call, and the city staff told her the city manager, Gordon Zimmerman, was the only person who could make the call. She said Zimmerman's initials are on the paperwork that reconciles the city's bank statements with its ledgers.

Zimmerman and his finance director "had to have known that they needed money to pay their bills," she said. "It couldn't have been a surprise. It wasn't a surprise."

Zimmerman, who has promised to resign once the fiscal crisis is resolved, was not at the meeting and declined in an email exchange to comment.

Residents furious about the situation tried to remove the mayor and three City Council members for refusing to fire Zimmerman, but the officials survived a September recall election.

The city borrowed $500,000 against future tax revenue to pay its bills through the end of the year, and that has been repaid, leaving the city with little cash on hand, Couch said.

City officials expect to keep borrowing against future tax revenues for the next several years.

Couch said the council had gotten inaccurate revenue projections, and the current budget assumes the city will bring in $1.8 million more in revenue than it has over the past two years.

"I'm concerned that the current budget doesn't work," she said.

James Affa, head of the city's budget committee, said he was shocked by her findings.

"Someplace down the line we're going to have to talk bankruptcy," he said.