The days of people borrowing money to buy a bunch of stuff they don’t really need are over.

Yet consumer binging and rising property values are the financial foundations that local governments are built upon.

Or were built upon.

Sales and property tax revenue that San Joaquin County cities use to pay their bills are down about 20 to 25 percent over the past two years.

And no one sees that changing anytime soon, with “soon” being measured in years rather than months.

This is the “new normal,” a phrase Tracy Finance Director Zane Johnston and others in government now use to describe what they see as a period of stagnant or declining income for cities, which are being forced to cut employees and services that the public became used to during boom years.

“They think we’re going to turn this around in a couple of years. We’re not,” said Laurie Montes, a deputy city manager in Stockton. “The whole system has to change, and we’re not getting out of this in the very near future.”

With cities in survival mode, few are pushing for a change in the way municipalities raise money to pay their bills. For now that’s just talk.

In the short term, cities across the county and the state are scrambling to find ways to live within their shrinking budgets.

Cities such as Tracy and Lathrop that are fortunate enough to have money in the bank are using it to bridge budget deficits.

Tracy will use $7 million in reserves to close its budget gap in fiscal year 2009-10, which begins July 1, leaving it with $25 million in the bank and its fingers crossed that it can weather a torrential economic storm without severe cuts, a hope that seems to get more faint with each quarter of falling tax revenues.

In Lodi, sales tax revenue used to be the No. 1 source of income. After a 25 percent drop since ’06-07, property taxes now top the revenue list, said city spokesman Jeff Hood.

Everyone seems to be in the same boat.

“We put together what we call a five-year survival strategy,” said Carey Keaton, city manager in Lathrop, which has laid off 10 workers and decided to spend $1.4 million of its reserves to close a deficit.

The plan, Keaton said, is to use reserves during that time to plug holes in the budget, and then “hope in that five years, the economy is going to start to turn up. If it doesn’t happen like that, our political leaders will have to make some real tough decisions on what they want to fund.”

An overwhelming $45 million deficit in Stockton has already forced administrators into “real tough decisions.”

Montes said 55 police officers have been given layoff notices in Stockton, where the city is just now asking employees to pitch in to pay for their health care benefits.

Just about everywhere in the county, cities’ employee contracts are being renegotiated downward to stave off more job cuts. And yet future job cuts to city workforces seem a sure thing.

“I think the handwriting is on the wall now,” Johnston said.

Layoffs, cuts loom in future

In 2006, at the height of the housing market that fueled much of the consumer economy, Tracy raked in $33.4 million in sales and property taxes. In 2009-10, Tracy estimates it’ll receive a combined $28.3 million.

In ’06-07, Tracy had about 527 full-time employees, a number that grew to 558 at its peak the following fiscal year. In ’09-10, Tracy expects to have 535 full-timers.

Looking further into the future, Tracy seems to be planning for the worst if revenues continue to plunge.

Despite belt-tightening, Tracy is on pace to stare down the barrel of a gaping $14 million deficit in five years if big changes aren’t made, administrators said in this year’s budget summary. Already, fees have been increased, the City Council has jettisoned its no-layoff policy, and employees will get paid less, pay more for benefits, and take unpaid days off.

Services that the public are used to will also almost certainly be reduced.

For one, administrators here have tossed around the idea of eventually having a nonprofit run the city’s cultural crown jewel, the Grand Theatre Center for the Arts, which cost Tracy $25 million to remodel. That would save $1 million annually in the city’s general fund, projected for the next fiscal year to be $53 million.

The city also might get rid of the Mayor’s Youth Community Support Network to save another $1 million.

And it could cut another 50 employees in fiscal year 2010-11, a figure that would rise to 120 employees if the City Council were to stick to its promise not to lay off police officers or firefighters, who corral the bulk of the city’s overtime pay.

Tracy and other cities could ask voters to increase taxes to pay for services, a request few bureaucrats believe voters will go for.

In the long term, some are starting to eye a change in the way cities raise money, to lessen their dependence on boom-and-bust retail sales and property values.

“There have been discussions about changing the nature of those taxes,” said Dwight Stenbakken, a deputy executive director at the League of California Cities, a sort of lobbying group for towns across the state. “The economy has shifted. Money is being spent on services rather than commodities.”

Johnston thinks getting rid of the sales tax, now 8.75 percent in Tracy, and replacing it with an across-the-board tax of perhaps 4 percent on retail goods and services would help cities.

Stenbakken said that’s an idea that’s been bounced around.

“A sales tax on services would be better to realistically reflect what’s going on in our economy,” he said. “Our tax base hasn’t followed that trend at all.”