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Palo Alto Online

Publication Date: Friday, January 30, 2002

Sales tax revenues plummet Sales tax revenues plummet (January 30, 2002)

City says no layoffs required -- for now

by Pam Sturner

Despite weak sales tax revenues in the third quarter of 2001, Palo Alto will avoid layoffs and other drastic cost-cutting measures, at least for now, city officials said.

Between the second quarter and the third -- which ended Oct. 1 -- sales tax revenues fell about 26 percent in Palo Alto, from $6.4 million to nearly $4.8 million, according to figures released by the state Jan. 23.

Palo Alto's businesses performed about average compared to those in neighboring cities. Over the same period, sales tax revenues fell 31 percent in Mountain View, 27 percent in Sunnyvale, 23 percent in Santa Clara and 14 percent in Cupertino.

"The number is not good, but it could have been worse," said Joe Saccio, the city's deputy director of administrative services.

He noted that revenues declined within all the major sectors of Palo Alto's economy, including sales of department store goods (down $200,000), new autos (down $400,000), restaurant meals (down $100,000) and office equipment (down $500,000). Revenues from sales of electronics were down $600,000, from $1.3 million to $700,000.

The slowing economy and the Sept. 11 terrorist attacks contributed to mediocre sales across California, said Debbie Nelson, a tax auditor for the state Board of Equalization.

Saccio said Sept. 11 took a heavy toll on hotels in Palo Alto, where occupancy rates fell to 51 percent in September, one of the lowest levels in recent years. The rates in July and August -- 61 percent and 62 percent -- were already modest, reflecting the deteriorating business climate compared to the same months in 2000, when hotel occupancy hovered around 80 percent.

Despite the dispiriting figures, City Manager Frank Benest said the third-quarter results do not warrant layoffs, as the city still has "lots of ideas" for less painful cuts suggested by employees in the fall.

Faced with a $6.3 million shortfall after the second quarter and anticipating a steep drop in revenues after Sept. 11, city workers identified $6.9 million in savings attainable through a range of measures. Along with a hiring freeze and other conventional actions, employees suggested marketing services - such as sign-making -- to other communities.

Whether the city needs to make deeper cuts will become clear in March when fourth-quarter sales tax figures arrive, Saccio said. These include holiday sales and are normally the largest of the year, contributing roughly $2 million more than any other quarter.

In mid-December retailers in the downtown area and Stanford Shopping Center thought sales might be down about 10 percent to 15 percent for the fourth quarter, Saccio said.

Worry also persists over whether the state will take local funds to help meet its own budget shortfall, which the Legislative Analyst estimated this fall at $12 billion to $14 billion for 2002-03.

Although Gov. Gray Davis promised in December not to take vehicle license fee backfills -- an important local funding source -- cities fear he might make cuts in other ways. One possibility would be to freeze grants, a measure that "would hurt; it would just come from elsewhere," said Carl Yeats, Palo Alto's director of administrative services.

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