Raleigh adapts to drop in sales

The city postpones some spending until it sees how much sales tax falls off

Raleigh City Manager Russell Allen said this week that the city will continue to rein in spending as it braces for a decline in sales-tax revenue.

"We don't know what the trend in sales tax is going to be," Allen said. "We don't know how the state's going to deal with their budget and whether or not that's going to have any impact on us."

The latest sales-tax revenue numbers will be released Friday and will include most purchases made in September. During the current fiscal year, which began July 1, Raleigh's sales tax revenue has increased about 5 percent over last year, which is what the city's 2009 budget projected.

But Allen and other city leaders expect those numbers to get worse before they get better.

The U.S. stock market declined 17.7 percent in October, its worst month since a 23 percent drop in October 1987. And the jobless rate for Durham, Johnston, Orange and Wake counties climbed to 5.6 percent in September, the highest since June 2003.

"We're being cautious right now," Mayor Charles Meeker said. "We're waiting to see if this is going to be a real big downturn or a small bump in the road."

Wake County Manager David Cooke has already said the county expects a $17 million shortfall in projected revenue. Allen said he also expects a shortfall but has refused to say how big it might be.

Sales-tax revenue accounts for 19 percent of Raleigh's $387 million general fund. Although revenues from various development fees are down 20 to 30 percent because of the economic downtown, they represent a much smaller percentage of the city's budget.

Property taxes, which account for 47 percent of the city's general fund, are sure to be hurt by declining home and auto sales. Perry James, the city's chief financial officer, said sluggish growth in the city's property-tax base will likely affect next year's budget more than the current one.

Raleigh is hoping that any revenue shortfalls experienced this fiscal year can be made up through cost-cutting.

The city has so far saved about $1 million from an informal hiring freeze that went into effect July 1. The freeze prevents most hiring for new positions or vacancies except in critical areas such as police, fire and sanitation.

Allen also put on hold $15 million worth of maintenance projects until at least January. The projects include things like greenway trail maintenance, tennis court resurfacing and street resurfacing.

Two potential bright spots in the city's budget are fuel costs and investment income.

The city budgeted an additional $1.7 million for fuel costs in May when the price of gas was hovering around $4 a gallon. The price has since plummeted to about $2.30.

Raleigh also predicted a 37 percent decline in investment income because it presumed interest rates would be kept low. But interest rates have remained higher than expected, leading to higher returns.