Clovis News

Valley's sales-tax revenue takes sharp nose dive

Sales-tax revenues in the central San Joaquin Valley fell sharply in the second quarter of this year, marking some of the worst declines in decades and posing scary budget threats for local government.

Officials are optimistic about third-quarter results, which will reflect the Cash for Clunkers federal-rebate program for auto sales. And they're hopeful that improvements in national economic indicators are a signal that the long recession finally may be starting to ease.

But diminished tax revenues in the first half of the year are forcing some community leaders to consider additional budget cuts, including the possibility of more employee layoffs and furloughs.

The sales tax nose dive was more pronounced in the second quarter than any other in recent memory.

"I've never seen it this bad," said Clovis Mayor Harry Armstrong, who has been on the Clovis City Council for nearly 40 years.

Last year about half of Valley cities were gaining revenue in the first and second quarters, but this year only two of 33 communities showed gains in those quarters.

Most cities had double-digit percentage drops in sales-tax revenue. For Fresno, that meant a drop of $3.9 million in the second quarter after a $2.8 million decline in the first quarter, forcing city officials to begin looking at $28 million in cuts for next year's budget.

Sales-tax revenues fared as poorly in other cities.

"Going back to 1982, we have never seen this kind of decline," said Eric Frost, finance director for Visalia, where taxable sales fell by about $1.3 million in the second quarter. "The good news is that it isn't as bad as we thought, the bad news is that it's still ugly."

Hanford officials will conduct a midyear budget review in January. The city already has laid off three people and kept 11 other positions vacant.

When housing was booming less than three years ago, property-tax revenues were rising in double digits.

"In prior years we were in a supercharged economy," Clovis City Manager Kathy Millison said. But "we aren't going back there any time soon."

Even with the sharp drops, city leaders said they are optimistic about third-quarter numbers because of a surge in auto sales. Those results will not be known until the state finishes tallying third-quarter sales numbers in January.

In the past two years, Frost said, auto sales dropped by half in Visalia, making Cash For Clunkers a welcome incentive.

In those two years, Visalia had to lower its budgets by about $8.5 million and lay off eight. The city also added an early retirement incentive for police administrative staff.

But Cash for Clunkers was probably most welcome in Selma, where nearly half the city's sales taxes come from auto dealerships. About 75% of the city's revenue comes from sales and property taxes, which also will drop.

Selma's general-fund budget, which pays for public safety, parks and recreation, has been cut by more than 20% in the past two years.

The city has had nine early retirements through an incentive program and employees have given up $1 million of salary in furloughs.

" Cash for Clunkers was a very beneficial program, but from what I hear now [car sales are] very slow," said D-B Heusser, Selma's city manager.

Heusser said the city also is taking another look at its finances.

City officials are aware that Cash for Clunkers will be a boon only to third quarter sales-tax revenues and are preparing for a sharp drop in the fourth quarter, which ends Dec. 31.

But Heusser said he is optimistic for next year, because the city's sales-tax consultant said the revenue declines now appear to be leveling off.

The best second-quarter sales figures were in Firebaugh, where the city gained nearly 31% in taxable sales.

Kerman, with a modest 0.8% rise in sales taxes, was the only other Valley city where sales-tax revenues increased.

In Kerman, two relatively new agricultural chemical companies have helped the city's revenues stay nearly even with previous years.

City Manager Ron Manfredi sees reason for optimism with new stores coming in, including a proposed Wal-Mart.

Two agriculture-related companies -- Olam International and Queengil -- began operating earlier this year and helped fuel Firebaugh's revival, said Jose Antonio Ramirez, city manager.

The companies were welcome additions since the city's sales-tax revenue fell 25% last year due to job losses in western Fresno County.

Ramirez said two key city staff members were laid off because of the revenue drop.

"We are incrementally moving in the right direction," he said.

But because of the lack of water for west-side growers, he remains cautious.

"We were in a worse spot last year than this year," he said. "I would like to say we hit bottom, but the water crisis is part of the unknown."