The city of L.A.’s economy will continue to grow in 2006 but at a slower pace than in 2005, thanks to the declining volume of real estate transactions, according to a revenue forecast released Thursday by L.A. City Controller Laura Chick.

With city revenue growth slowing, Chick echoed comments Wednesday from L.A. Mayor Antonio Villaraigosa, saying the city must be more cautious in its spending. “The city’s propensity to spend in excess of its revenues could create a crisis unless we develop an effective method of keeping the budget within the city’s revenue generating capacity.”

On Wednesday, Villaraigosa announced that the city had a $291 million structural deficit and that he was prepared to “do whatever it takes” to bring that under control in five years, including making staff cuts and negotiating tougher contracts with city unions.

In her forecast, Chick projected city revenues would rise $165 million to $3.9 billion in the 2006-07 fiscal year starting this July 1, an increase of about 4 percent. She projected property taxes would increase by $135 million, or 8 percent, to $1.3 billion. Business tax receipts would increase by about 4 percent to $407 million, while sales tax receipts would also rise 4 percent to $325 million.

In a letter to L.A. Mayor Antonio Villaraigosa accompanying the revenue forecast, Chick warned that the city was not doing a good job in capturing sales taxes.

“Per capita retail sales in Los Angeles lag far behind smaller neighboring cities. The city does not have the retail establishments that sell the types of merchandise tourists and Angelenos are leaving the city to buy,” she said.

The city needs to do a better job aggregating underused retail land for retail redevelopment, she added.

Also, as a hedge against future budget difficulties, Chick urged Villaraigosa and the City Council to increase the city’s reserves from the current 3.3 percent of general fund revenues to 5 percent.