Shrinking sales tax revenue: Mid-year cuts proposed to deal with deep dip
February 4, 2010
People just aren’t buying, building and boozing like usual, and it shows in a series of dismal third-quarter sales tax reports from around Nevada County.
Sluggish sales are forcing local officials to bring sharp mid-year cuts to the table at next week’s city council meetings – such as leaving positions vacant and cutting more deeply into department budgets. Predicting the decline will continue, some of those cuts will likely be permanent.
Already, local governments have left vacant positions unfilled, laid off some employees and furloughed those who remain. City halls are closed for public business one to four days monthly.
In Grass Valley, a federal stimulus grant of $280,000 over three years has allowed the police department to fund one entry-level officer position that had been held vacant, police Capt. Rex Marks said.
But seven more positions for sworn officers and six civilian positions remain frozen.
“We could be faced with further reductions in staff because of budgetary restrictions,” Marks added. “The challenge we face is to maintain the high quality of service to the community people have come to expect and appreciate.”
In anticipation of continued hardship, managers in Grass Valley departments have held back on budgeted spending, looking for ways to cut without impacting service – such as holding off on buying new equipment.
It’s a matter of focusing on needs and delaying wants, Marks said. “Our bottom line,” he said, “is we’re going to continue to provide core services,” and hope the recovery comes sooner rather than later.
That frugality is expected to become permanent, with budget adjustments reflected in coming years’ budgets, City Administrator Dan Holler said.
In Nevada City, Finance Director Catrina Andes was unwilling to detail possible cuts before discussing them with the council at next week’s meeting, she said.
It remains unclear how further budget cuts could impact government employees or area residents. Any additional layoffs or furloughs would have to be negotiated through the employees’ labor unions, Holler said.
Sales tax receipts for unincorporated Nevada County were down 19.6 percent in the third quarter (July-September 2009) compared to the same period in 2008. Grass Valley’s receipts were down 19.3 percent and Nevada City’s were down 39.4 percent in the same period.
The drop partly reflects a spike in fuel prices in summer 2008, making sales tax income artificially high.
But it also shows a number of long-term trends.
The unincorporated county saw a steep drop in activity in building and construction – the largest source of revenue – with receipts from contractors slipping about 50 percent in a year’s time. In third-quarter 2008, contractors brought the county about $104,000. In 2009, that slid to $55,000.
Nevada City’s poison was a drop in restaurant and gas station receipts. In all, the city’s gross receipts fell from $286,000 in third-quarter 2008 to nearly $174,000 in 2009. The Seven Hills Business District was especially hard-hit, according to Nevada City Finance Director Catrina Andes.
The three governments deal with sales tax declines differently.
For Grass Valley, where sales taxes provide close to half the city’s revenue, it’s a big deal. City Hall employees are furloughed four days a month.
“Sales tax is a big nut for us,” Holler said.
City staff already has identified $200,000 in mid-year cuts – a lot of little things, Holler said – and will discuss them at Tuesday’s council meeting.
For Nevada City, where sales tax is about a quarter of revenue, it’s also worrying. Employees are already furloughed one day each month.
But Nevada County’s situation is different. Most of its $181 million budget comes directly from the state, with requirements attached for how it is spent. Of the total budget, local officials have discretion over about $44 million – and that comes mostly from property tax.
Just six percent of the county’s discretionary fund comes from sales taxes.
“Cities are much more reliant on sales tax than counties, (while) property taxes are such a large portion” of county revenue, said Deputy County Executive Officer Joe Christoffel. “This year, we’re projecting that property tax will decline, and that will have a significant impact on the county.”
Sales tax revenue was already on a downward spiral a year ago, but the recession picked up momentum between late summer 2008 and late summer 2009. Across California, sales tax revenue fell 16.4 percent in that span, according to a report from The HdL Companies, which contracts with each of the three governments to track sales taxes.
Will the financial skid come to a halt? It may slow down, experts say.
Analysts predict “this will be the last quarter of comparative, double-digit decreases, as the recession begins to bottom out … by fiscal year 2010-11,” according to The HdL Companies.
But the road ahead will continue to be bumpy.
“Tight credit, high unemployment, price pressures and the end of federal stimulus funding are expected to stall significant recovery until the year after,” The HdL Companies predicted.
Until things start picking up, local city leaders are preparing to present the findings and proposed mid-year cuts to the Grass Valley City Council when members meet at 7 p.m.
Tuesday, and to the Nevada City Council when that panel meets at 6:30 p.m. Wednesday.
In many ways, city leaders are powerless to improve the building industry or control fuel prices. But there are some things they can do.
“It’s critical for us to look at tourism and city trade,” Holler said. “Building is independent of us. … But how do you promote what’s here in a general sense?”
To contact Staff Writer Michelle Rindels, e-mail firstname.lastname@example.org or call (530) 477-4247.
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