MERCED -- Rapid building, beefed-up police departments and surging general funds marked the good times for Merced County cities up until the 2007-08 fiscal year. Then the bottom fell out.
What followed was a trip down the other side of the fiscal mountain, which included layoffs, furloughs and decreased revenues for cities that had gotten so used to growth and climbing reserves.
Atwater faces a fiscal crisis with severe cutbacks and reductions as officials try to remedy a general fund that's more than $3 million in the red, but its hardships aren't unique.
Jeff Michael, director of the Business Forecasting Center at the University of the Pacific in Stockton, said cities throughout the valley have faced relatively similar financial struggles and recovery will be gradual.
"Cities are under a lot of stress," he said in a phone interview from Stockton, which filed for bankruptcy earlier this year. "The problems that have afflicted Stockton have afflicted all cities in the valley to some degree, but they've all been somewhat different."
Although some cities have had success negotiating with employee groups to resolve budget shortfalls, others have had to resort to stronger measures.
"Most cities have made substantial layoffs, sometimes 20 percent or more," Michael said.
While the economy was booming, cities became dependent on fees from new construction for financial support before the bottom fell out, Michael said.
"That was pretty much it," he said. "Some cities anticipated streams of money from those fees and have got themselves into trouble."
A number of city leaders, such as Los Banos City Manager Steve Rath, saw it coming.
In 2007, Rath worked with a local economist to create a projected graph of the looming foreclosure crisis. He gave the document to the City Council in 2008, and the hard times followed.
Los Banos went through with layoffs in 2008. The city hasn't issued a residential building permit since January of that year.
"You can't build a home for what you can buy one for now," Rath said.
Though property taxes will continue to lag, most cities should be seeing modest growth in sales tax, Michael said.
"Most cities in the valley now are seeing some recovery in sales tax (and) some continued deterioration in property taxes," Michael said. "Property taxes tend to lag behind due to the assessment process as well as the re-evaluation process as (homes) are sold and reset to their new values."
Property taxes could continue to decline even as market values stabilize or improve.
Stabilizing, not recovering
Sales and property taxes are offsetting each other in some areas, Michael said. Most Central Valley cities are seeing stabilization rather than recovery at this point. "Revenues have somewhat stabilized, but they're not growing rapidly yet," he said.
In addition to a drop-off in property taxes and an overall poor economy, the loss of redevelopment agencies also hit valley cities hard.
Dan Carrigg, legislative director for the League of California Cities, said the economic crisis has been hastened by several factors, including state decisions and increased foreclosures.
"It's been difficult throughout the state, but I would say in the valley it's been accelerated, probably because they've typically always had a bit higher unemployment rates than elsewhere in the state, and I think it's been magnified by the foreclosure crisis," he said.
Cities are finding themselves in "uncharted territory" due to the economy.
"It's forced a lot of belt-tightening at the local level," Carrigg said. "Just in the last four or five years, you've seen cities do things that I would say four or five years ago would have been almost inconceivable. They've been laying off police and fire, closing parks, doing lots of things that, I think, people thought they wouldn't really see."
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