Carlsbad's budget isn't dipping into the red, but the sagging economy is dragging down tax revenues, the finance director told the City Council yesterday.
When the council approved its $195.1 million operating budget last month, it projected sales taxes to remain flat, and the economy is fulfilling that prediction.
Finance Director Lisa Irvine said Car Country Carlsbad, the auto mall near Palomar Airport Road and Interstate 5, is selling fewer cars and contributing less in sales taxes to the city's treasury.
Tax revenue from sales of new cars is projected to be $6.4 million for the year, down from an earlier forecast of $6.8 million, for a drop of about 5.8 percent.
That decline matched similar dips in sales tax revenues from Westfield Shoppingtown Plaza Camino Real, downtown businesses and the Forum at Carlsbad shopping center. Carlsbad Premium Outlets at Interstate 5 and Palomar Airport Road was holding steady, Irvine said.
Sales taxes constitute about one-fourth of the city's general fund revenues of $120.7 million. The general fund pays for basic city services.
Irvine said the city also is keeping an eye on possible property reassessments, which could lower tax revenues. Homes sold during the peak of the real-estate market could be reassessed to current market levels, she said, lowering their tax.
In a worst-case scenario, Irvine said, if all the homes that fall into that category were to be reassessed and assigned a lower tax payment, the city could be hit with a $1.9 million loss.
“We don't think this is likely,” Irvine said.
Irvine said that despite that potential, the county's assessor is projecting a 7.5 percent increase in Carlsbad's property tax revenues from sales of new and existing homes.
Property taxes make up about 42 percent of the city's general fund.
The bad economic news was counterbalanced by an increase in hotel-room taxes, which are likely to rise despite the slowing economy. The city projects $14.8 million in hotel-room tax revenues this year, an increase of 8.8 percent over last year.
Several new hotels opened in the city in the past year. Irvine said that based on the number of rooms occupied, the hotels are attracting new customers, and not drawing patrons away from other hotels in the city.
Irvine attributed the tourism increase to “stay-vacations,” where people drive to destinations near their homes, and to the attraction of a declining dollar to foreign travelers.
City Council members said the wild card for the budget is the state, which is short $22 billion and may take money from cities to balance its books.
Irvine said Carlsbad doesn't need to adjust its budget yet, and the council asked for regular briefings on the economy and city finances.
Michael Burge: (760) 476-8230; michael.burge@uniontrib.com
