Nov. 17--Monterey County hotel managers and restaurant owners started feeling the economic pinch immediately following Sept. 11. Now the cities that rely on tourism-related taxes are feeling it. 

Monterey, the richest and most tourism-reliant city on the Peninsula, has lost more than $1 million in budgeted hotel tax income since July. 

"This is certainly a budgetary concern for us," said Don Rhoads, the city's finance director. 

And, he said, it's not likely to get better any time soon. Even without the tourism slowdown prompted by the terrorist attacks, the industry slumps in the fall and winter. 

"Hotel taxes really begin to dip this time of year," said Rhoads. 

In September and October, the city of Monterey received $770,000 less in hotel taxes than it did during the same period last year, a drop of 29 percent. For the 2001-2002 fiscal year, Monterey officials had projected hotel tax income of about $12.5 million. In July and August, the declining economy resulted in a decline of $260,000 in comparison to the same months a year earlier. 

The decline could mean a $3 million deficit in the city's budget next year if the economy doesn't turn around by Christmas, said City Manager Fred Meurer. "Three million dollars is the guess of the day," Meurer said. "I'm going to have to pick a number and pick a target." 

"This year I think I can balance my budget," he continued. "Long-term, we'll need to reduce the cost of operations." 

Monterey, like other area cities, had projected no growth in hotel tax income when they drafted budgets for the current fiscal year, but weren't anticipating a dramatic fall-off. Each of the cities, and Monterey County, imposes a tax of roughly 10 percent on hotel room bills. 

With the tax responsible for financing a number of key government services, the drop in tourism and the weak economy also has Pacific Grove officials taking another look at the numbers. 

In Pacific Grove, hotel tax revenues in the first quarter of the current fiscal year -- July 1 through Sept. 30 -- dropped by $60,000 to $938,000, a decline of about 6 percent. 

"The reduction in receipts from last year was expected, due to the economic slowdown the country is experiencing," said Peter Woodruff, the Pacific Grove's administrative services director. 

Woodruff said the city's original projection of $3 million in hotel tax revenue for the year "is a candidate for reduction." 

In Carmel, hotel tax revenues dropped by about $111,800 in the first three months of the current fiscal year, said Sandy Davenport, financial services coordinator. She said the impact has not been significant so far. 

Monterey County's budget in the first quarter remained strong, but hotel tax revenues in the month after the terrorist attacks, according to a new report by county budget analyst Al Friedrich. 

Friedrich anticipates a $2.5 million drop in hotel tax revenues for county government due to the tourism slump. 

"By mid-October the tourism industry began to realize some return to a more normal pattern," he wrote in a quarterly budget report that will be presented to the Board of Supervisors next week. "Although there is improvement in hotel occupancy, continuing uncertainty resulting from terrorist activities coupled with a deeper economic downturn will likely depress the (hotel tax) revenue base for the remainder of this fiscal year." 

The county receives hotel taxes from unincorporated areas, including Big Sur, Pebble Beach and Carmel Valley, all popular tourist destinations. 

Last year, the county collected more than $13.4 million from hotel visitors. It was estimated that hotels would generate about $14.75 million for the county this year, but officials have reduced that estimate to $12.25 million, about 13 percent less than what was received last year. 

Friedrich did not recommend any immediate budget cuts, however, because he also projected a $2.5 million increase in property tax revenue. 

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(c) 2001, Monterey County Herald, Calif. Distributed by Knight Ridder/Tribune Business News.