The latest round of letters was sent Friday by the state Board of Equalization, informing 337 cities, counties and transportation agencies of their reduced payments. Of those, 14 cities and one county were told revenue had declined so steeply they bottomed out - and would receive not a cent. Those unlucky 15 included the Bay Area cities of Petaluma, Cotati, Hercules and Portola Valley.

The news is yet another blow to cities and counties that have had to give up billions of state dollars to help close California's $24 billion deficit.

"It's just bad news, after bad news, after bad news," said Jean Hurst, a lobbyist for the California State Association of Counties.

Local losses

The state Board of Equalization, which collects all sales taxes and doles out portions that belong to local jurisdictions, would typically send such letters sporadically when a city lost a big department store or other major source of sales tax revenue.

But with this recession, which some economists have called the worst since the Great Depression, sales tax receipts plummeted further than expected, prompting the Board of Equalization to send mass notifications in February, May and this month.

"We've never had broad-based, statewide reductions like this until this year," said Anita Gore, a spokeswoman for the agency.

In all, cities, counties and agencies such as transportation authorities will be losing a total of $58 million in August because of sharper-than-expected decline in sales tax receipts in April, May and June, the Board of Equalization said.

State officials had expected sales tax revenue to drop 14.4 percent in those months compared with the same period last year, but the actual tax receipts fell by 18.75 percent, said Gore.

Teresa Barrett, vice mayor of Petaluma, which won't be getting any portion of the $375,000 that the city had expected this month, called it terrible news.

"This just exacerbates our (financial) problem," she said.

Like the state and most other local governments, Petaluma has had to balance its budget by closing nonessential city offices every Friday and laying off employees, including the city's entire planning staff of about a dozen workers.

"We now contract that service out," she said. "It's been a big change to our city, and we're hoping that we can turn things around, but we're not in a vacuum."

But some local agencies said Friday's bad news was expected and they plan to dip into their reserve funds to make up for the loss.

Not unexpected

"It's not a total surprise to us," said Joe Smith, chief financial officer for the Santa Clara Valley Transportation Authority, which will receive $11.2 million in August, which is nearly $1.4 million less than expected.

The agency has budgeted $54 million - about 15 percent of its budget - in reserves for the current fiscal year. Still, the tough economic times are far from over for the transit agency, which will impose a 25-cent fare increase in October while the agency's board contemplates an 8 percent service cut beginning in January.

"We're anticipating things will deteriorate a bit more," Smith said. "We're assuming sales tax receipts next year will be 5 percent less than in 2009, and possibly down again by 3 percent in 2011."

Hurst said that for most cities and counties, this month's reduction in sales tax allotments will hurt their cash flow, which became more problematic this summer when the cash-strapped state began issuing IOUs on July 2 to taxpayers, vendors and local governments.

"Cash-flow management has become increasingly difficult," Hurst said.

But in one bit of good news Friday, the state's top finance officials agreed to stop issuing IOUs on Sept. 4, nearly a month ahead of schedule, because of the budget agreement reached late last month between Gov. Arnold Schwarzenegger and the Legislature.

On Friday, the state controller said his office so far had issued 386,000 IOUs for a total of $2.15 billion.

E-mail Matthew Yi at myi@sfchronicle.com.

This article appeared on page A - 1 of the San Francisco Chronicle