COSTA MESA : Tax Revenue Drops; Cutbacks Possible

The city saw yet another decline in sales-tax revenue for the third quarter of this year, forcing it to look harder to find ways to cut costs without cutting services or raising other taxes.

City Manager Allan L. Roeder told the council on Monday that he expects sales-tax revenue to be lower than expected when the 1991-92 budget was proposed. If sales continue to decline, Roeder said, city revenue could be $2.1 million below the $25.5 million projected in the current budget. That represents an 8.2% drop from last year, when revenue also declined from the previous year.

In addition, Roeder said the situation could get worse if the state adjusts its budget by cutting more than originally expected in allocations to cities.

“I don’t think that the prospects are plausible that the state is going to raise taxes again, which means that they will likely pass that (loss) on to the local governments,” he said.

Costa Mesa relies on sales at upscale South Coast Plaza for about 40% of its sales-tax revenue and thus has fared better than many Orange County cities in economic hard times. City sales-tax revenue had steadily risen from the 1983-84 fiscal year until last year, when revenue dropped $1.3 million, or 5.1%.

If the recession continues to hit hard at businesses, the tax revenue shortfalls could worsen, Roeder said. He added that economists have predicted that housing declines and cuts in defense spending have heightened the effects of the recession in the county, which could have a further impact on sales-tax revenue.

“These experts are predicting that Orange County and the rest of California will remain in a recession for another year,” he said in a report to the council.

In September, the city ordered a hiring freeze and asked each department to develop plans to operate with 3.5% cut from its budget this year, and an 8.3% cut next year. Roeder will also start meeting with a special fiscal review committee of employee association members, residents and business leaders this month to figure out ways to keep city services at current levels.

The hiring freeze and normal turnover has reduced the staff, and Roeder will report to the council within a week on how the attrition rate has affected the budget. The council has left it to the city manager’s discretion to fill needed positions, such as in the Police Department.