Major declines in sales tax revenue have area city leaders worried about the impact on their budgets, and some say layoffs and hiring freezes may be in store if the trend continues.

Denton sales tax revenue has declined faster than sales tax revenues statewide in the past 12 months, a Denton Record-Chronicle analysis has found.

Denton’s revenues declined 6.32 percent in 2009, compared to the statewide dip of 5.09 percent, according to an analysis of data from the state comptroller’s office. Sales tax revenues in Denton-area cities also took a hit overall, dropping 7.6 percent compared to 2008.

Revenue in the final quarter of 2009 softened considerably, according to allocation data from the state comptroller. Denton released its analysis of October revenues — received in December — and found they were down 19.43 percent compared with October 2008, marking the fourth straight month of double-digit percentage declines.

The declining October sales tax revenues show the recession has hit Denton and surrounding cities pretty hard this year compared to last year, said Bernard Weinstein, an economist in the Cox School of Business at Southern Methodist University.

“The unemployment numbers have risen, which means disposable income is down,” Weinstein said. “People are spending less and saving more.”

Not only has unemployment or underemployment hurt city sales tax collections, but retailers are discounting like never before, which means revenue from the attached sales tax on consumer items has also decreased, he said.

The news of a 19 percent decline in sales tax revenue for Denton in October was surprising, considering the large student population, Weinstein said, which could show students are spending less along with the rest of residents.

“We’re ultimately looking at a very severe recession affecting the entire U.S., Texas and Denton,” he said. “We’re doing better compared to most parts of the nation, but that doesn’t mean we aren’t hurting.”

On Friday, State Comptroller Susan Combs announced that significant sales tax declines, which began in February and across all major sectors of the state’s economy, will continue. Her office anticipated that the next payout — on Jan. 8 for November — will be down another 14.4 percent, compared to November 2008.

Both small and large cities across the state are affected by lower tax revenues, which are attributed to retail sales slowing, construction on new homes decreasing and fewer oil and gas companies drilling, said R.J. DeSilva, a spokesman for the comptroller’s office.

The lost tax revenues started during the late spring and early summer across the state, he said.

“This is something we had projected, and we expect it to last through the end of this year and into 2010,” DeSilva said. “The losses will be reduced until a rebound happens and is something we will keep an eye on.”

While the October numbers are cause for concern, the upcoming few months and holiday shopping season should tell economists how long the recession will impact sales revenues, said Terry Clower, an economist at the University of North Texas.

“If the city is receiving less revenue, it could potentially reduce city services, or lead to hiring freezes or salary freezes,” Clower said. “The municipal budget will be impacted, but the degree to the impact depends on how long it [lower sales tax revenues] lasts.”

Ultimately, there will be some adjustments to Denton and other area cities’ budgets in response to the downturn in the revenue stream, he said.

Cities in northeast and central Denton County must stretch to make up an aggregate of $630,000 less this year than last. The city of Denton saw about $1.3 million less in sales tax revenues between 2008 and 2009.

Much of that decline was offset by lower-than-expected expenses and increases in some other revenue sources, city Finance Director Bryan Langley said. But the pace of the declines since July is troubling, and city leaders are meeting to discuss how to respond, he said.

“It’s clearly something we’ll have to be developing contingency plans for going forward,” Langley said, mentioning a strict hiring freeze as one of the options being considered.

While overall, revenue is down in area cities, some cities still saw increases. Sanger and Ponder, for example, brought in more revenue overall from 2008 to 2009, but both saw significant declines in the fourth quarter of 2009 compared to 2008.

Sanger City Manager Mike Brice said he told his staff Monday morning he was concerned about the trend.

“I was hoping that September was just a blip,” Brice said. “This concerns me greatly.”

Brice bemoaned the lack of information available to understand the trend.

“We haven’t lost any big businesses,” Brice said. “In fact, a few businesses have opened here recently.”

If the trend continues, the city won’t make its projections, which means layoffs and cuts in city services may be in the offing for this fiscal year.

“We may have to make some hard choices,” Brice said.

CANDACE CARLISLE can be reached at 940-566-6889. Her e-mail address is ccarlisle@dentonrc.com .

PEGGY HEINKEL-WOLFE can be reached at 940-566-6881, Her e-mail address is pheinkel-wolfe@dentonrc.com .

LOWELL BROWN can be reached at 940-566-6882. His e-mail address is lmbrown@dentonrc.com .