Sales Slump Puts Squeeze on City, County Governments : Recession: Officials say they expect no relief from the sharp drop in tax revenues, even though the retail season is entering its home stretch.

Orange County local governments are faced with sharply dropping sales tax revenues, a slump that shows little sign of improving even as the retail season enters its home stretch.

Cars are sitting unsold on showroom floors. Retail stores are reporting big declines in sales. Building materials are not finding buyers because the housing industry remains in the doldrums.

All of that has hurt local industries, and the fallout has been equally hard on local governments, which rely heavily on sales taxes to pay for police and fire protection, environmental planning, transportation services and all manner of other government activities. This is the season when sales typically pick up, but this year officials are not expecting any miracles.

“We were just talking about this this morning and saying that maybe we’ll get a good Christmas season,” said Dennis Danner, finance director for Newport Beach. “But we don’t have much reason to believe that.”

Many local finance experts and elected officials say it is too soon to panic: The recession could turn around, after all, and budgets could quickly rebound.

But they are closely watching the disappointing month-to-month returns, and some privately predict that a new round of government cutbacks may be needed soon.

Sales tax revenue in Newport Beach was down roughly $500,000--or about 19%--during the first four months of this fiscal year, which began July 1. Danner says that is likely to change before next June 30, but so far the returns have been bleak.

The same goes for Anaheim, Santa Ana and Costa Mesa, three of the county’s largest cities and ones that have major car dealerships, shopping centers and entertainment outlets. Each has seen their sales taxes drop in recent months.

“Everything we’ve seen suggests that it’s still going to be awfully tough,” said Mark Davis, Costa Mesa’s deputy treasurer. “Our revenue is still down.”

Those same problems are being felt statewide, as taxable sales for July through September took their first dive since the recession of 1982. Across the state, sales dropped by 5.2%; in Orange County, the numbers were even worse as they fell 6.1%, records show.

It has been three years since Orange County recorded such low numbers, and even the addition of more than 100,000 new residents in that time has not been enough to increase local taxable sales.

In Newport Beach, monthly updates to the City Council on the state of the budget have become routine. The county supervisors now receive an extra set of midyear budget briefings designed to give them a head start on tackling problems during uncertain times. Meanwhile, Santa Ana’s finance chief said the city is sketching out plans for making cuts or raising new revenue if the numbers do not start improving soon.

For the county government, the sales tax drop comes at a particularly tricky time. As part of its budget passed last summer, the state began transferring health and social service programs to counties for them to administer.

In Orange County’s case, that means taking over about $50 million in services that had been the state’s responsibility. The trade-off was supposed to be that the programs came fully funded--so that at least the local government did not stand to lose money on the deal.

The only trouble is that the services are supposed to be funded by the new hike in sales taxes, and with tax receipts falling, some county officials are concerned about the potential damage to the local health-care system.

“It looks like we’re about 5% short already,” said Fred Branca, chief of the county auditor’s agency accounting division. “That comes to about $2.5 million.”

Unless the economy turns around, that means that health-care and social service agencies could lose more than $1 million each for their newly inherited services. That could force them to pare welfare and health care to poorer residents.

“This is definitely a big concern,” said Bob Griffith, chief deputy director of the county Social Services Agency. “We’re going to have to start looking at a number of options, but none of them are at all welcome.”

Meanwhile, in Santa Ana, a 10.5% sales tax decline in the first four months of the year compared to the same period in 1990 has sparked a search for new money or services that can be cut in order to make up for what could be the loss of up to $3 million by next June. Santa Ana’s troubles have been exacerbated by the loss of some car sales to the nearby Tustin Auto Market, officials said.

“We were expecting a decrease, but we never expected it to decrease this much,” said its finance director, Rod Coloma. “We’re starting to look at ways to bridge the gap.”

Buena Park, which relies heavily on its car dealers and on Knott’s Berry Farm for its sales taxes, has watched that revenue source slip away this year. Officials started the year projecting $9.6 million in sales tax revenue. That would have been less than the city collected in 1990-91 or even in the year before.

Now, it is looking even worse. The city’s taxable sales dropped nearly 14% during the fall, more than any other Orange County city.

“We’re probably not going to make our estimates,” said Agnes Walker, the city’s finance manager. “It’s not doing good.”

In fact, only the smaller residential communities, such as Fountain Valley and Laguna Niguel, appear to be entering the holiday season with their budgets relatively intact.

Thanks to a few new stores, Laguna Niguel is actually posting a modest sales tax increase this fall compared to last year, said Dennis Miura, the city’s finance director.

And La Palma thoroughly defied the state and county trends by posting a whopping 54% increase in taxable sales this fall over 1990.

Still, La Palma, Laguna Niguel and a few other area municipalities remain the vast exception, as most continue to struggle. That has left officials in those cities bracing for the worst and wistfully surveying each new round of indicators for signs that relief may not be far off.

Some look to building permits, hoping that a surge there will give an early indication of new life in the housing industry. Some scan retail figures, looking for life in that dormant sector. A few local officials even take note of theater ticket sales or lines in fancy restaurants.

“Everybody’s got something that they look at,” Branca said. “The problem is that no matter what the indicator might be, all of them right now point to the bleaker side.”

Taxable Sales Decline

Total taxable sales in the county during the first quarter of 1991 were 6% less compared to the same period in 1990. They were also slightly below the 1989 level.

In millions of dollars ‘87: $5.4 ‘88: $5.7 ‘89: $6.2 ‘90: $6.5 ‘91: $6.2 Source: State Board of Equalization