ESCONDIDO -- Sales tax revenue dropped more than twice as quickly as city officials expected during the first three months of 2009, worsening Escondido's budget crisis and prompting officials to worry that the downward spiral may not be close to bottoming out.

Because the city has 20 auto dealers and the Westfield North County mall, Escondido relies more on sales taxes than other cities to fund police, fire and other services.

The numbers show that sales tax income dropped 17 percent when the first quarter of 2009 is compared with the first quarter of 2008, which is more than double the 8 percent decrease city officials had predicted. It was the 13th consecutive quarter during which the city's sales tax revenue decreased.

Sales tax revenue was $4.07 million during the quarter, compared with $4.9 million one year earlier. City officials had expected to receive $4.5 million.

The $430,000 shortfall could widen the projected deficit for fiscal 2008-09 beyond the $3.8 million that city officials predicted when they made emergency midyear budget cuts in January.

But Joan Ryan, the city's revenue manager, said Wednesday that some other revenue might come in higher than expected for 2008-09, including the city's franchise fee from San Diego Gas & Electric. Ryan said franchise fees would probably increase about $500,000, from $5.4 million to $5.9 million.

The new numbers were a factor in Councilman Dick Daniels withdrawing his support late last month for the city to subsidize a downtown luxury hotel. In addition, the new data prompted a trio of City Council members to demand deeper cuts during budget negotiations that concluded Monday.

Daniels said he withdrew support for the hotel, which would have required more than $10 million in subsidies from the city's reserve fund, because of the "tailspin" affecting city finances.

"We are living in times of great economic uncertainty, and it's this unprecedented high level of uncertainty that has caused me to rethink releasing the reserve funds designated for economic incentive until we have a better idea of how deep our revenue declines will go and when we'll reach the bottom," Daniels said in explaining his change of heart on the hotel.

Council members Sam Abed, Marie Waldron and Olga Diaz also mentioned the 17 percent sales tax slide when they pressed for deeper budget cuts during some turbulent budget hearings last month.

They said they were uncomfortable with a plan to cover projected deficits with $11 million in city reserves over the next four years, partly because they worried some city revenue predictions might be too rosy.

On Wednesday, Abed criticized city officials for not making deeper cuts when the downward sales tax trend began.

But in sharp contrast to Daniels, Abed said the sales tax crisis makes the hotel deal more important because it would diversify city revenue and make Escondido less reliant on sales tax.

The city's annual sales tax revenue has fallen from more than $30 million to roughly $25 million since the spiral began in 2006. Last year, Escondido lost its longtime spot as the county's No. 2 producer of sales tax revenue to Chula Vista. The city of San Diego remains No. 1 by a wide margin, with more than $210 million in sales tax revenue per year.

Jo Ann Case, Escondido's economic development manager, said Wednesday that the city has some reason for optimism on sales tax.

She noted that a new Lexus dealer is slated to open soon near Interstate 15 and Ninth Avenue, and she said national retail data have shown a spending uptick in May.

She said the city does not have any hot leads to fill the Mervyn's or Circuit City stores abandoned last winter, but she said some new restaurants had been exploring sites in Escondido.

Call staff writer David Garrick at 760-740-5468.