Pinal sees $600,000 drop in sales tax revenue

Pinal County officials are coming up short of sales tax expectations for the first two months of the new budget year - $600,000 short, to be exact. The trend is also being experienced in places such as Mesa and Queen Creek, which have seen drops in new building permits as the construction industry has slowed.

Queen Creek has made the move to a four-day workweek for town employees, and Mesa is looking at a 13.4 percent drop in sales and use tax revenue from a year ago - which will lead to major cutbacks to basic services like its fire department, city officials have said.

Pinal County's declining tax revenue hasn't yet led to layoffs or more aggressive maneuvers made by other East Valley governments.

However, the construction excise tax, one component of the county's overall sales tax, is down 7.7 percent for July and 10.2 percent for August compared with a year ago, the most recent figures available.

Those figures won't likely improve as the year wears on. Places like Johnson Ranch and other communities in northeast Pinal County are experiencing some of the highest foreclosure rates in the state. New residential growth has slowed.

On top of that, the commercial and retail growth that naturally follows a population boom has not yet been built in the county on a large scale, and tough credit markets could slow that progression, according to real estate experts.

For county government, that could mean that the lower-than-expected construction sales tax figures for the first two months could continue or get worse.

If all sales tax rates stayed the same as the first two months, the county would experience a $3.6 million shortfall on all sales tax revenue for the budget year, which ends June 30.

"Well, of course we didn't anticipate it," said Manny Gonzales, assistant county manager. "We are concerned, but we put together a pretty conservative budget. If it continues, we'll have to look at what changes to make."

The county started the budget year with a $30 million cut to its spending plan from the year before and has employed several measures to keep spending in check.

The county imposed a 180-day hiring freeze last spring. It's a rolling system that holds a position open for about six months when an employee leaves.

The county is also holding off on a multimillion-dollar revamp of its county office campus in Florence amid the economic downturn. And employees will receive no cost-of-living salary adjustments as part of this budget.

"We made some adjustments earlier in anticipation of this, and I think they have been working well," said County Supervisor Lionel Ruiz. "We haven't had to lay people off."

But that stance might not hold, depending on the sales tax figures and the county's expenses. Still looming are expected state budget cuts that could pull more money from Pinal County's budget.

"That's the $20 million question," Gonzales said. "That's a big unknown."

Gonzales said the county doesn't anticipate making any moves until the first quarter of the budget year is in after the October figures are known. "We're looking at everything that other cities and counties are doing," Gonzales said.