Napa ended its fiscal year on June 30 in good shape, but trouble looms, city Finance Director Carole Wilson told the Napa City Council this week.

Revenues were 1 percent higher than projected last year due to strong property and hotel taxes, but conditions during 2008-09 could be markedly worse, Wilson said.

Sales tax revenues dipped sharply during the spring and early summer. Excluding gas stations, there was a 7 percent drop, which is likely to worsen in months ahead, she said.

“If the trend continues on, we’ll have to address those issues,” Wilson said Tuesday.

Wilson will be giving the council quarterly updates so any dramatic change in the city’s financial condition can be addressed early. The city has a $7.9 million reserve available for natural disasters and short-term dips in the economy, she said.

Wilson said the nation’s economic woes — a depressed housing market, a sell-off in stocks, rising unemployment and tight credit — will have an effect locally.

“This will be a long-term issue. We really need to hold on for a while,” Wilson said.

Property tax — the city’s largest source of revenue — came in 2 percent higher than expected last fiscal year, Wilson said. But with housing prices declining and the county lowering assessments on large numbers of properties, bets are off for this year, she said.

Hotel taxes — the city’s third-largest revenue source — performed extremely well, coming in 8 percent over expectations, Wilson said. “On a brighter note, the tourists keep coming,” she said.

The city’s largest hotels, in particular, performed better last year than they had the year before, Wilson said.

In the April-to-June quarter, city retailers did 5 percent less business than the year before. Because of higher gas prices, service stations saw a revenue increase of 28 percent, she said.

New auto sales revenues were up 2 percent in the quarter, while used vehicle revenues dropped 27 percent, Wilson said.

The food sector was up 6 percent, propelled by a 28 percent jump in liquor store sales, she said.

Although the stock market is off sharply, the city’s reserve funds are safe, Wilson said. Most are invested in U.S. Treasury notes, she said.

In trying to balance its own budget, the state took away nearly $300,000 in downtown redevelopment funds. State cuts will have little impact on city activities for now, but the prospects for the future are worrisome, Wilson said.

The state could face an even larger budget deficit next year, Wilson said. With state revenues behind projections, the Legislature may have to revisit the budget in coming months, she said.

The county’s preliminary unemployment rate was 5.3 percent in August, compared to 4 percent a year ago, Wilson said. “We’re not immune,” she said. “It’s happening here, too.”

General fund revenues totaled $64.2 million last year, $867,000 more than projected. Expenditures were $59.1 million, $2.4 million less than budgeted.

The gap between revenues and expenditures was appropriated earlier this summer to a variety of one-time uses, Wilson said.

The city will spend an extra $1.5 million on sidewalks and streets, $2 million on Napa Creek flood control, $1.2 million toward a west side fire station, $500,000 toward building repairs and $100,000 for a new Fourth Street dock, she said.

With the stock market plunging, Councilman Mark van Gorder asked if the city could expect a sharp increase in its contribution to employee retirement.

California’s Public Employees Retirement System tries to smooth rate increases and decreases from year to year, so the hit should not be as great as Wall Street’s recent performance might indicate, City Manager Mike Parness said.