Stanislaus County hit by sales tax slump

The signs of the recession in the valley are everywhere: vacant storefronts along Modesto's McHenry Avenue, an unemployment rate approaching 20 percent and a record number of people lining up at food banks.

The economic downturn also has struck at one of local governments' most critical revenue sources: sales taxes.

In the past three years, Stanislaus County and eight of its nine cities have lost $16.74 million in sales tax revenues -- a 22.9 percent decline -- as residents have spent less at the mall, bought fewer new cars and trucks, and not filled their gas tanks as often. (Hughson, the ninth and smallest city, did not provide data for this story.)

Sales tax often is the No. 1 revenue source for a city's general fund, making up 20 percent to 30 percent of the fund. The general fund pays for basic services such as parks and recreation, libraries, police and fire.

And unlike other government revenues, sales taxes are discretionary, giving local governments wide latitude in how they are spent, such as in beefing up public safety or youth programs.

The county and its cities have laid off workers, trimmed payrolls with furloughs and wage reductions, and curtailed or eliminated services as they struggle to balance budgets during the worst economic downturn since the Great Depression.

"When we take these hits of millions and millions of dollars in a relatively short period of time, that hits the services people are concerned about," said Cynthia Gale, acting budget manager for Modesto.

The downturn has hit local governments differently.

Less to be gained from big boxes

For instance, Modesto, the county's retail center, has seen a huge drop in sales tax from department, furniture and clothing stores, consumer electronics retailers, and drug and sporting goods stores.

For the county, the sales tax drop was fueled by about a 40 percent decline in new auto sales and in construction.

Oakdale relies heavily upon cars and trucks with more than 36 percent of its sales tax dollars coming from service stations, new auto sales and auto parts and repair businesses.

The city's sales tax revenues have dropped 28.6 percent in the past three years as fewer travelers stopped for gas and snacks on their way to Yosemite and the Sierra, and fewer people bought cars and trucks from the city's new auto dealers.

Tiny Newman in western Stanislaus County has taken the worst beating, losing 38 percent of its sales tax revenue. It took in more than $515,000 in sales taxes in the 2006-07 budget year and expects to finish the 2009-10 budget year on June 30 with $320,000.

Losing its last new auto dealer in 2009 didn't help. But City Manager Michael Holland said Newman also is losing $50,000 to $60,000 a year because of a tax-sharing deal Modesto struck in 2008 with an oil distributor.

That deal also is costing Oakdale sales tax money.

But Holland said Newman has weathered the recession well by restricting spending and relying on reserves it built up during the boom times. Newman has about $2.4 million in reserves against a general fund budget of about $3.5 million.

Newman has laid off a couple of workers, not filled some vacant positions and converted some jobs from full to part time to help balance its books.

Riverbank hanging in there

Riverbank was the only one among the eight cities and the county to see its sales tax revenues hold steady, primarily because of its Crossroads shopping center, which draws shoppers from Oakdale and east Modesto.