San Luis Obispo sales tax shows drop in fourth quarter

San Luis Obispo’s sales tax revenue — the main revenue source for the city’s general fund — continued to decline late last year, a drop that could mean more spending cuts in the near future.

Sales tax revenue in the fourth quarter of 2009 — considered the most essential because it includes holiday sales — dropped by 4.9 percent from the same quarter of 2008.

Although the drop was less steep than those of the previous nine months, it marks more than two straight years of sales tax revenue declines.

City leaders had expected sales tax revenue for the fourth quarter to be flat. Because that didn’t happen, it means the city will begin the 2010-11 fiscal year on July 1 with a lower revenue base than anticipated.

That decline translates to about a $150,000 loss for city coffers for the fourth quarter.

Sales tax generates about $11.5 million in annual revenue for the city and is used to pay for a variety of expenses, such as employees’ wages and road maintenance.

“We were hoping for a better result, but I remain reasonably optimistic about the results,” city Finance Director Bill Statler said. “Even though the numbers are not flat, at least it is a lower rate of decline. If we are not at the bottom yet, we are close.”

Statler said the city’s slowed decline follows state and national trends.

The additional loss in sales tax revenue adds to the city’s $1.5 million projected budget shortfall. In February, the City Council agreed to freeze all hiring, staff training and travel to help reduce the gap between revenue and current spending.

The council will discuss suggested cuts to fill the budget gap in June.

“This is the longest and worst decline in sales tax that I have seen and the hardest recession we have faced,” Mayor Dave Romero said.

Romero said cuts to the city’s capital improvement program, among other options, would likely be discussed in June to meet the shortfall.

Indicators that sales tax figures will not fall much further include auto sales being relatively flat compared to the previous year and a small growth in spending at local hotels and restaurants.

General consumer goods, the largest category representing about 30 percent of the city’s sales tax income, were down by 7.5 percent in the fourth quarter 2009 compared to the prior year.

But if Gottschalks’ holiday sales were removed from the fourth quarter 2008 sales, that category too would have been relatively flat, Statler said.

“It seems that we are positioned for a modest recovery, but I don’t expect a sharp rebound — it’s going to be a slow process,” he said.