Poor sales figures show widening deficit

Weaker-than-expected holiday sales have made Costa Mesa’s fiscal situation grimmer than analysts had projected, according to sales tax data recently released by the state.

The city’s finance department raised a red flag in February, predicting a fiscal-year deficit of $11 million and cautioning that it could be even higher. Now that the numbers are in from the fourth quarter of 2008 the admonition has become a reality.

Significant drops in retail and car sales were the biggest culprits in Costa Mesa losing about $2 million in sales tax revenues for the fourth quarter of 2008 compared with the previous year.

Assuming the current economic trends continued through the beginning of 2009 and the city doesn’t cut its expenditures — both big assumptions to make — the city would be staring down a $14-million fiscal-year deficit, said Budget and Research Officer Bobby Young.

“At the time we [made the last prediction] we didn’t know what the economy would do to the Christmas season, so we were hopeful that there would still be people out there shopping and generating sales tax. This kind of confirms that we didn’t generate the sales we were hoping to,” Young said.

Sales tax typically accounts for more than 40% of the city’s revenue, a large part coming from giant retail mall South Coast Plaza and auto dealerships on Harbor Boulevard.

The other big pieces of the puzzle are property tax, which makes up about one-quarter of the city’s revenue, and hotel tax, which chips in another 5%. But those numbers are much less volatile and significant than sales tax, Young said.

The city is predicting that property tax will stay more-or-less flat through the end of the fiscal year and hotel tax will continue to come in about 10% shy of where it was last year, leaving February’s projections substantially unchanged in their respective areas.

Ever since ballooning in 2005, new motor vehicle sales have plummeted. And while department store sales have steadily crawled upward in the past 10 years, they dropped significantly from 2007 to 2008.

The steep increase that is usually seen in sales during the holiday season looks more like a bunny slope for 2008.

The city has been trying to get the unions that represent its employees — police, firefighters and city hall staff — to make concessions to balance its budget, but the unions have said they won’t renegotiate their contracts until the city can prove its fiscal woes.

The books won’t be closed for the fiscal year until July 31; more sales tax, property tax and hotel tax numbers will arrive in coming months.

Salaries and benefits make up about three-quarters of the budget. Meanwhile, City Manager Allan Roeder has been trying to trim other expenses by asking departments to leave positions vacant and forgo replacing equipment as well as postponing construction projects around town.

The cuts are an ongoing process, but Roeder has said they will not be nearly enough to prevent the city from having to dip deep into its reserves to pay its bills this year.

Reporter ALAN BLANK may be reached at (714) 966-4623 or at [email protected].