Jul. 12--CHAPEL HILL -- With the economy stuttering along and job losses continuing to mount, American families are watching every dollar closely.

That could spell trouble for the Town of Chapel Hill and other area governments struggling to make ends meet.

If residents continue to spend less, that means merchants will collect less in sales taxes to help fill municipal coffers.

For Chapel Hill, the property tax and sales tax account for the lion's share of its revenue. So it's always a big concern when sales taxes drop off.

For the fiscal year 2008-09, sales tax revenue decreased by 7 percent or roughly $700,000. Town officials had originally projected sales tax revenue of $9.6 million, but the actual figure came in at around $8.9 million.

What's worse, officials think there will be an even bigger decrease this fiscal year, which began July 1.

Current projections for the 2009-10 fiscal year call for a 10 percent reduction. Officials expect to collect roughly $8.6 million in sales taxes.

"It's probably a conservative estimate based on some of the uncertainty in the economy right now," said Ken Pennoyer, director of business management for the Town of Chapel Hill.

He said officials will monitor sales tax revenues on a regular basis but believes the town will come close to hitting the mark with its projections, even if the economy worsens.

"Since our estimates are fairly pessimistic, we're going to be close," Pennoyer said.

Adam Klein, vice president for the Chapel Hill-Carrboro Chamber of Commerce, said local business owners remain cautiously optimistic that the economy will improve.

"We're hearing from economists that it will be a slow climb out of this recession," Klein said. "In 2010, it's going to look better, but nothing like it did in the late 1990s when we had a significant increase in economic growth."

Klein added that the he, too, believes the climb back to fiscal health will be a "slow ascent."

"I think the town is taking good steps by being cautious with the budget," Klein said. "[Budgeting for a proposed 10 percent decrease in sales tax revenue] sounds about right to me."

In Carrboro, town officials are predicting a 9.3 percent decrease in sales tax revenue for this fiscal year, which began July 1. The sales tax collections in 2008-09 were $3,375,587, though some are still trickling in, and projections for 2009-10 are $3,062,045, meaning the town expects to receive $313,542 less in sales taxes than it received last year.

That was a conservative estimate made during the budget process designed to protect the economic health of the town, said Bing Roenigk, assistant town manger and finance director.

But as the economy continues to struggle, Roenigk said it may not be such a conservative estimate after all. Sales tax revenues for 2008-09 are still coming in from the state, and during the first three quarters of the year, sales tax revenues have gone down 7.5 percent, Bing said.

Now it appears the 9 percent estimate may be right on target, Roenigk said.

Sales tax revenue is the second largest source of revenue for the town after property taxes.

The sales tax revenues Carrboro receives from the state don't necessarily reflect what is happening locally, Roenigk said. It's a very complex formula for how the taxes are distributed, Roenigk said, but it includes a 1 percent tax from point of sale and that's a better indicator of the local buying economy.

The 1 percent tax is not going down as quickly because there is a strong local buying culture in Carrboro, and the unemployment rate has not dropped as quickly as it has in other parts of the state, she said.

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