A slowdown in the local real estate market has county officials seeing red.

That’s red, as in a looming blow to the bottom line of San Juan County’s financial plans for this year and presumably the next.

“It’s time to start worrying,” Auditor Milene Henley said at the conclusion of last week’s presentation to the County Council of second-quarter financial results.

Administrator Pete Rose advocated putting cost-cutting moves in place right away to help buffer whatever ripple effects the drop in real estate sales are likely to create. He suggested that moving departmental spending decisions “further up the food chain,” evaluating the need to fill vacant positions, encouraging teleconferencing rather than off-island travel, and asking department managers for ideas on reducing expenses, are steps which could be taken immediately.

“The easiest cuts to next year’s budget is the dollars we don’t spend this year,” Rose said.

According to Henley, in the first six months of the year the county collected about one-third of the revenue that taxes on real estate sales are expected to generate by the end of 2008. That’s compared to 53 percent and 66 percent produced over the same time frame last year and the year before, respectively. In raw numbers, nearly $1.5 million was generated by the end of June compared with the $4.4 million projected for the end of the year.

Without a significant turnaround, the Land Bank and the county capital improvement account, both fueled by excise taxes, will be hardest hit. In fact, Henley noted, revenue projections for the capital improvement account, which is supported almost entirely by a one-fourth percent excise tax, have already been scaled back by $310,000 and several “unavoidable” expenses, such as new accounting software, forced the county to dip into the account’s 2009 expenses. “We’re already spending 2009 dollars,” she said. “That’s not good.”

Land Bank Director Lincoln Bormann said the agency will trim this year’s revenue projections by roughly $600,000 — down to $2.5 million — to account for the drop in local sales. It’s also pursuing a greater number of state and federal grants to fund purchases or recoup costs of prior acquisitions, and relying on “reserves” to help cover $2.1 million in annual loan and bond payments.

“The big issue for us is if there isn’t a rebound in the Real Estate Excise Tax (REET) by 2009 or 2010 we will have spent down our reserves significantly,” Bormann said. “We can get by but it could be a very lean time in terms of future acquisitions.”

The mid-year financial results do contain several bright spots. Henley said property and sales tax receipts are stable, in line with previous years and on course to meet budget projections. Still, she cautioned, construction historically drops off following any downturn in real estate and that sales-tax totals have depended heavily in the past on local building projects. Construction contributed by far the greatest percentage in 2006 and 2007, accounting for 37 percent of the total; retail sales trailed at 26 percent.

Henely said cost-cutting moves could prove more painful than in the past. In previous years, numerous departments ended the year without spending the entirety of their budgets, frequently up to six percent. Those cushions were eliminated during the past two budget cycles, she said.

“We’ve excised as much of the fat out of the budget as we could,” she said.