Gilroy suffers budget woes due to sales tax

May 14, 2008 6:53:37 PM PDT
Cities across the Bay Area are grappling with budget issues, but in Gilroy where shopping is king, the economic slow down is having a direct and dramatic impact on the city.

Gilroy is known for it's garlic and for it's oasis of outlet stores.

"The quality is good, so I love shopping," says a woman.

In all, Gilroy has more than 600 retail stores. The mayor says sales tax revenue accounts for 45 percent of the city budget.

"We live on tax. And we've been fortunate enough to have the economic development that took us to this level," says Gilroy Mayor Al Pinheiro.

In this economy even the promise of discount prices are a hard sell.

"I would come like once every two months, because of the gas prices, yeah."

In the last six months, sales tax revenue has fallen nearly 7 percent. That's cost Gilroy $552,605 and the budget woes do not end there.

The building slowdown is also hitting Gilroy hard. The city projected $18 million in development funds for new roads and other infrastructure, but the actual development will generate about $5 million.

Gilroy's economic leaders say they aren't expecting a quick turnaround.

"I think it's probably going to be at least a good two years to three years before we start to see a leveling off and coming back up," says Larry Cope, The CEO of the Economic development Corp.

Gilroy is fortunate that it has built up a $25 million reserve but a projected $7 million defect is already eating away at that cushion.

The mayor says current budget talks will result in a cut back of services.

"Bottom line is we're going to be mindful, we're not going to take our eye off the ball and we will make sure Gilroy stays healthy within this economy," says Mayor Pinheiro.

The city says solid sales at places like Costco and Wal-Mart are helping and it's reminding its residents that shopping local means the sales tax revenue stays local.


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