As foreclosures plague the housing market and employers reduce their work forces, consumers have changed their spending habits. That has translated into a dramatic decline in retail sales in San Bernardino and Riverside counties, leaving cities to address revenue shortfalls by eliminating positions, laying off employees and considering cuts to public services.

In the third quarter alone, Riverside County experienced an 11 percent decline in sales tax revenue and San Bernardino County an 8.5 percent decline, said John Husing, an economist and president of Redlands-based Economic & Politics Inc.

Cities throughout the two-county region have updated their budgets weekly and even daily, allowing them to make adjustments if revenues come in below forecasts made in their current 2008-2009 fiscal year budgets.

"Expenditures are being scrutinized daily to reduce them as much as possible without having to resort to layoffs," said Paul Sundeen, assistant Riverside city manager. "No full-time employees have been laid off."

The sales tax budget for fiscal 2007-08 in Riverside was $61.3 million but has fallen to $52.6 million for 2008-09.

"We expect it to fall somewhat further," Sundeen said.

Corona has reduced its staff by 112 positions, laying off 69 full- and part-time employees. The remaining reductions were achieved by eliminating vacant positions, Finance Director Debra Foster said.

"We've had five or six straight quarters of negative retail sales tax growth," Foster said. "Our latest figures show retail sales taxes have declined by 14 percent to 15 percent."

Fontana has seen sales tax revenue fall 4 percent to 5 percent, City Manager Ken Hunt said. "We're trying to be very cautious about how we spend money. We were conservative with our revenue numbers in our current budget."

In its current fiscal year 2008-09 city budget, Fontana estimated $28 million in sales tax revenues. The city expects to bring in 95 percent of its projected sales tax revenue, leaving it with a $1.4 million shortfall, Hunt said.

"We have not had any layoffs," he said. "We've implemented a hiring slowdown." If a position becomes vacant, the city determines whether it really needs replacing.

"However, we will have to make adjustments if things deteriorate."

Because of the weak economy, Ontario's budget was reduced in July by $4 million, primarily through the elimination of 25 positions, City Manager Gregory Deveraux said.

"No one lost their jobs, but we did eliminate vacant positions and some employees were moved to different positions."

Deveraux warned he may suggest "further adjustments" when the first-quarter budget report is presented to the City Council in mid-November or early December.

Consumer confidence shaken

The New York-based Conference Board recently reported its national consumer confidence index was at its lowest level in its history, which means business owners in the two-county region can expect continued weakness in the retail sector.

The private research group announced Oct. 28 that its gauge of consumer sentiment fell to 38 (out of 100) in October. That was well below analysts' expectations and down from 61.4 in September.

It was the lowest reading since the group began tracking consumer confidence in 1967. Consumer spending makes up about two-thirds of U.S. economic activity.

"When people are scared they generally don't spend on cars, appliances and they certainly don't buy houses," Husing said. "You have unemployment going up, and wealth as measured by home values going down. It all points to a very difficult retail environment."

The boom in home equity values that had been used as a "piggy bank" by homeowners to buy consumer goods is gone, said Johannes Moeninus, an associate professor at the University of Redlands Business School. Declines in spending have resulted in layoffs in the low-paying retail sector, which has "driven down the whole system even further."

"The impact of the financial crisis over recent weeks clearly has taken a toll on consumer confidence," said Lynn Franco, director of The Conference Board Consumer Research Center. "The decline in the Index (-23.4 points) is the third largest in the history of the series, and the lowest reading on record."

Bonds not issued

California's recent success in obtaining $5 billion in loans to address the state's cash crisis signaled that credit markets may be improving and that investors may soon turn to bonds again. But cities throughout the Inland Empire remain hesitant to issue bonds, whose repayment is tied to their general funds, to pay for things like repairing roads and building libraries.

"We haven't gone to market recently with any bond (issues) and don't anticipate issuing any bonds tied to our general fund," Corona's Foster said. "We may go to market next spring with a housing bond, but (repayment) is not tied to our general fund."

Fontana has no plans to issue any bonds this year, Hunt said. "It's a terrible time to be issuing bonds. We just don't have any plans to be in the market."

Ontario will not issue any bonds in the near future, Deveraux said.

"We certainly are watching the market," he said. "We're planning to issue water bonds and have a window of several years to go to market. But it's not something we're going to do in this market."

He declined to say how large the bond will be, saying the bonds have not been "sized" yet. Ontario was not at risk of defaulting on any of its outstanding bond debt.

Finding a solution

The solution to the current economic crisis can be found in the mortgage market, Husing said.

"Definitely this will continue into next year," he said. "There have been various discussions to reduce the number of foreclosures. Unless we can solve this problem, this will go on for a very long time."

With California facing an estimated $3 billion to $10 billion budget shortfall, state lawmakers may look to cities to assist in making up the difference, making already strained budgets even worse, Husing said.

Lawmakers returned to Sacramento last week to deal with the state's budget crisis after Gov. Schwarzenegger called a special session of the Legislature.

"Let's hope they don't put their hands on city finances," Husing said.