With little resident appetite for an increase in taxes, Cape Elizabeth might be forced to lay off some municipal workers and otherwise tighten its belt to overcome a half-million-dollar shortfall in 2010, said Town Manager Mike McGovern.

“There’ll be some discussions on those things,” McGovern said. “Some things will be proposed for a reduction that will make people upset and nervous.”

Cape is facing the shortfall in part because excise taxes have fallen nearly $170,000 from fiscal year 2009, McGovern said.

“People just aren’t buying new cars right now and the cars that are being renewed are aging,” he said.

The council will meet as the finance committee, which is a committee of the whole council, in a workshop on Tuesday, Jan. 6, at 7:30 p.m. at the Town Hall.

“Our outlook for 2010 is not great, but there were few surprises in the news of anticipated decline in revenue from excise tax from automobile registrations, and state revenue sharing,” McGovern said. “In fiscal year 2010, non-property tax revenues are estimated to fall $361,000.”

State revenue sharing was expected to be $58,000 less than the budgeted level for 2009, he said.

While the town is facing a shortfall, it is also facing nearly $200,000 in budget-increase pressures, including increases for employee contracts and benefits and unbudgeted funding for the town’s fitness center, McGovern said.

“It is estimated that this could put us in some sort of a hole,” said Town Councilor Anne Swift-Kayatta. “I anticipate that it will be more difficult to manage the budget and still implement the programs that citizens want. The recession is affecting us in the town budget the same way it is affecting the citizens in their personal budgets.”

McGovern has been town manager since 1985 and has worked closely with Cape’s budget since 1977. The budget situation is the worst he’s seen in that time, he said.

“There’s been downturns, but it’s never been quite this bad,” he said. “The budget next year in all likelihood will be, in dollar terms, less than this year’s budget. I can remember budgets that didn’t increase, but never decreased.”

There is some good news, McGovern said, as new property valuations are expected to offset some of the anticipated decline in revenue, leaving the town with a projected $517,000 budget drop.

Swift-Kayatta said she and the other councilors want to tackle the issue aggressively through the finance committee meetings.

McGovern said he is recommending that the committee prepare a municipal budget with clear savings, no tax increase and no new fees.

“We are going to try and get citizen input to hear what their priorities are and so on,” Swift-Kayatta said. “If something needs to be cut, we will know what the citizens want.”

The council hopes to discuss the matter further at its Jan. 12 meeting, Swift-Kayatta said.