Not immune to the turbulent financial times, the Allegheny Regional Asset District board is proposing to freeze operating support to local arts and cultural groups next year and eliminate nearly all capital aid because of an expected drop in sales tax revenues, its chief funding source.

A preliminary $80.3 million budget released yesterday is $3.7 million lower than the record $84 million spending plan adopted this year, in large part because of a cut in capital grants.

In all, the budget funds 90 groups and organizations, the same number as this year. Operating assistance would stay at the same level as 2008 for those entities. No new groups are to be funded for 2009.

Among those taking hits is the city-Allegheny County Sports & Exhibition Authority, whose request for $2 million to cover a chronic operating deficit at the David L. Lawrence Convention Center was sliced by half.

Others losing out include the organizations that oversee the Benedum Center, Heinz Hall, the Byham Theater and the Senator John Heinz History Center, which were denied capital assistance to make roof or other repairs to those buildings.

The only ones to receive any capital aid in the preliminary budget are the city and county parks, the city of McKeesport for parks and the Allegheny Land Trust for trail development. By law, 1 percent of asset district sales tax revenue is earmarked for capital projects in city and county parks.

Overall, capital spending would drop from $3.1 million this year to $1.9 million in 2009 under the preliminary budget.

A budget vote is tentatively scheduled for Dec. 1.

In its report, the board's allocation committee said it was forced to take the tough measures because of uncertainty in financial markets, an increase in local unemployment and dropping consumer confidence.

"Each factor individually points to a possible reduction in retail sales; all of them happening together is uncharted territory," it stated.

While sales tax revenue estimates have held up so far this year, the state is recommending that the asset district lower its expectations for the next 12 months, the committee said.

Dan Griffin, an allocation committee member, said the state is predicting a 1.3 percent drop in sales tax revenue. As a result, the district is budgeting $76.6 million in sales tax revenue next year, a $1.6 million, or 2 percent, decrease. For 2009, the district is projecting that overall revenue, sales tax and interest, will drop 2.5 percent.

"I'm crossing my fingers that it's only 2¹/₂ percent," said Rick Pierchalski, another member of the allocation committee.

To help cover the $80.3 million budget, the board is again reaching into the district's reserves, taking $3.4 million on top of the $5.1 million used this year to balance the spending plan.

Mr. Pierchalski said that will leave about $14 million in its reserves, but as much as $9 million of that is committed each year to covering shortfalls while awaiting the receipt of state sales tax revenues.

That, he said, does not leave much to cover future budgets and could lead to funding cuts if sales tax revenues continue to decline.

The allocation committee decided to cut the authority's request for the convention center in half because it found that agency had already received $3.4 million in state gambling revenues to help cover the building's operating deficits, Mr. Griffin said.

"When the district approved operating funding for the center two years ago, it was with the understanding that it was bridge funding until other dedicated sources of support began flowing, which has now happened," the committee said in its report.

"We appreciate what they were able to do. We understand their constraint. We will be continuing to work on our budget issues over the next couple of months," authority Executive Director Mary Conturo said.

The asset district board will hold a public hearing on the preliminary budget Oct. 27 at 3:30 p.m. Those who want to testify must register by 4:30 p.m. on Oct. 23 by calling 412-227-1900.