Tax plunge levels off Tax plunge levels off (April 09, 2004)

Big-box retailers supply sales tax revenue after high tech fades

By Grace Rauh

The bad news is that local sales tax revenues aren't projected to grow next year. The good news is -- they aren't expected to drop either.

After three years of fast-falling sales tax revenues, city officials are cautiously optimistic that the roller coaster ride has finally come to a stop. The city receives 1 percent of every sale made in Mountain View.

"We hope and I cross my fingers ... that that landscape is changing now and companies are at least stabilized," said Mountain View economic development director Ellis Berns.

New businesses are moving into previously vacant offices in the North Bayshore Area and high tech flight from the city appears to have petered out. While the leveling off of sales tax revenues is a welcome trend for the city, officials are expressing their relief in moderation.

"We continue to be in tough economic times," said city manager Kevin Duggan.

However, these stable revenues are giving officials the chance to focus on another threat looming over the upcoming budget -- a potential state take-away.

"The greatest concern in regard to the budget at this moment is the state," said Duggan when addressing the city council recently.

The state withheld more than $1 million in vehicle license fee revenues from the city this year and Gov. Arnold Schwarzenegger has proposed lifting an additional $1.2 million from Mountain View under next year's California budget. Yet with sales tax revenues expected to remain steady for the first time since the economy tanked -- there is some good news to balance the bad.

Mountain View's sales tax revenues, which account for roughly 21 percent of the city's total revenues, surged during the dot-com boom when high tech companies boosted the figures with business-to-business sales. But when major technology businesses -- including HP, Sun Microsystems and Agilent Technologies -- closed local offices or downsized operations, sales tax revenue began plummeting.

Since the peak in 2001, the city has seen sales tax revenues decline by $10.9 million or 45 percent. The city projects taking in $13.6 million in sales tax revenues next year.

Now the free-fall appears to have stopped and the landscape has shifted. The city is increasingly looking towards big box retailers like Target and Costco to generate a much larger portion of Mountain View's revenues.

Although retailers have been hit by the down economy, they have increased their contribution to the city's finances significantly over the past few years. During the dot-com boom, retail comprised 43 percent of sales tax revenues and now it brings in 63 percent, according to the city's assistant finance director, Patty Kong. But the changes appear to have little to do with changes in retail shopping trends.

"It's really from losing a lot of the business and industry," Kong said.

Nevertheless every dollar spent in Mountain View helps keep police and firefighters on the streets and the libraries open, according to Berns.

"There is some benefit to shopping locally," he said.

One neighboring city developed a creative, low-cost way to boost revenues last year. The citywide "Shop Palo Alto" campaign encouraged residents to shop locally and, at the very least, raised awareness about how sales tax revenues help fund cities. Mountain View has not adopted a similar program and officials say the city is putting its limited resources elsewhere.

"The focus has been to try to work with existing companies and try to attract some other companies to this community," Berns said.

E-mail Grace Rauh at grauh@mv-voice.com

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