MOUNTAIN HOUSE — If current trends continue, Mountain House could face a deficit of more than $500,000 as early as next year.

On Thursday night, Dwayne Milnes of Stockton-based Citygate Associates led a detailed presentation at a district board meeting that broke down the past, present and future of Mountain House’s economy. The numbers looking into the future painted a rather bleak picture.

Mountain House’s general fund was about $6.4 million at the start of the fiscal year that began July 1. Milnes estimates that number will be about $3.3 million by July 1 and will dip into the red by June 30, 2010. He projected a shortfall of $542,490 if the community does not change the way it spends money.

Milnes said that financial policies drawn up years ago, prior to the housing crash, need to be re-evaluated.

“Part of the object is to look ahead two or three years and say, ‘How deep do we need to make a cut this year if things continue?’” Milnes said. “The CSD has to take considerable action to both reduce expenses and increase revenue and ask, ‘How do we position ourselves for the next two or three years?’

“This is a major deal that’s going to take major policy decisions.”

Money from the general fund goes to pay wages and benefits of the district’s more than 20 employees, as well as to maintain roads and streetlights. The services district gets most of its income from property taxes in the form of special taxes earmarked for transportation, public safety, parks and public works.

The district pays the Tracy Rural Fire Protection District for firefighting services and the San Joaquin County Sheriff’s Department for police protection.

However, the Mountain House’s high foreclosure rate has led to a decrease in property tax income.

Milnes showed directors how property tax revenue in the general fund — after a peak in the 2007-08 fiscal year — declined last year, a trend he estimated would continue.

Mountain House previously estimated a rapid growth in taxable new homes, but the reality has been slow. For instance, in the upcoming 2009-10 fiscal year, the district projected to have well over 5,000 houses. As of Jan. 1, there are only 2,847.

Milnes likened Mountain House’s problem to the budget crisis facing California, but in an earlier stage.

“The forecast for what it cost to provide services was wholly inadequate,” Milnes said. “The forecast regarding the growth is radically different than the reality.”

The board has considered increasing the special taxes by 4 percent, which would generate $176,000 more revenue. Special taxes are divided up in four categories: roads, transportation and community services, public safety, parks, recreation and community facilities and public works.

District General Manager Paul M. Sensibaugh said that they have formed a special finance committee to find ways to help the budget. Board member Jim Lamb and other members of the board also discussed the need for more meetings prior to the next scheduled budget workshop in May.

“In all of our campaign materials, all of us said something about fiscal responsibility,” Lamb said. “We’re going to want to do the responsible thing.”