NEWMAN - Taxable sales in Newman plunged at an alarming rate in the third quarter of this year, another dose of bad news for a city budget which has already been hit hard by the crash of the housing market and the economic downturn.

City Manager Michael Holland said taxable sales in the city were down by 60 percent from the third quarter of 2008, which has major financial ramifications for the city. Local government receives a portion of the tax collected on local transactions.

“The impact is significant,” Holland commented. “If that trend were to continue for the entire year, it would be in excess of a $100,000 loss for the city. It would significantly increase our deficit.”

City officials contend a tax sharing deal struck between the city of Modesto and Breshears Petroleum, which operates a bulk plant and fueling station locally, is siphoning off tens of thousands of dollars of sales tax revenue a year from Newman.

“I believe the Breshears agreement is going to be a substantial portion of (the decline), up to half of it,” Holland commented. “We are looking into it. The current status which Modesto is sharing is that they are looking at it internally. They are agreeing to meet with Newman and Oakdale (another city blaming the tax-sharing agreement for revenue loss). We are not just going to let it blow over.”

The city is also looking at what other factors may be contributing to the sales tax slide - if it can be attributed to a small number of businesses, or simply reflects a struggling economy across the board.

Holland said the city also wants to verify that the numbers released by the state are correct.

“The last six months have not been kind to us,” he acknowledged. “We are looking into it with our sales tax consultant to determine how much of the decline is Breshears, and how much is just the economic times we’re in.”

Sales tax is the city’s second-largest source of general fund revenue, ranking behind only property tax.

Both have been battered by the economy. In addition to the sales tax doldrums, property tax revenues have shrunk by 40 percent over the past two years in response to free-falling home values.

The city, which operates on a July 1-June 30 fiscal year, will take a mid-year look at its budget in January.

But Holland said local government has already tightened its belt on expenses as much as possible while still retaining the services residents have come to expect.

“I don’t know how we can cut any more than we have without having a significant impact on our residents. We’re hoping that (the third-quarter numbers) were an anomaly, and that something comes back saying it was a mistake. It is going to be very difficult maintaining services at those levels,” Holland commented. “All we can hope for right now is that we are at or near the bottom with the economy. It is going to be a while before we see any significant improvement.”