The city of Riverside, Calif., has been feeling the pinch from the housing downturn for more than two years. And if demand doesn’t pick up measurably, it expects housing-related fees it collects monthly to drop off by nearly 30 percent next year.

Riverside is like many municipalities that are facing revenue shortfalls because of sharp declines in new-home construction and home sales, which in Riverside’s case are exacerbated by plummeting home prices and an avalanche of foreclosures.

In the first quarter of 2008, Riverside’s taxable sales from building and construction, at $959.7 million, were 26.56 percent below the same period the previous year. Paul Sundeen, the city’s CFO and treasurer, provided Builder with a breakdown of housing-related fees the city collects, in which he projects that collections in the 2008–2009 fiscal year could be nearly 60 percent lower than they were in 2004–2005, when Riverside was one of the country’s hottest housing markets.

In 2008, Riverside reduced its general fund budget by 5 percent. And Sundeen says that reductions in building-related revenue have led to targeted cuts for the city’s Community Development Department. The sales-tax shortfall also has had an impact on Riverside County’s Measure A transportation program. Sundeen says that the Transportation Uniform Mitigation Fee program administered by the Western Riverside Council of Governments might yield less grant funding if housing doesn’t turn around.

Recently, local economist John Husing called on Riverside to temporarily cut impact fees to allow builders to build more affordable homes. But Sundeen didn’t think that would alter the playing field. He explains that impact fees average about 8 percent of a home’s selling price. “If the city cut developer fees by, say, 10 percent, the likely benefit per home would be only a few thousand dollars,” he says. “Such a small cost savings is not likely to induce significant additional construction activity.”