Housing Hangover

Funny how things can change in a year. Some of you might remember this column I wrote last year at this time “Leaving SD for Chula? Think Again.”

I had talked about the phenomenon of police officers leaving service at the city of San Diego to go work for Chula Vista and how that maybe wasn’t the best idea. After all, Chula Vista was about to face some of the same type of budgetary pressures that San Diego was going through. And that city’s police force may be asked to sacrifice just as much as San Diego’s was.

I managed to upset both the police officers and Chula Vista officials.

The city’s finance director wrote a memo to Chula Vista leaders denouncing my points. And three of them called on speaker phone demanding I rethink them. We got into a long conversation about the city’s finances and boiled our troubles down to a fundamental disagreement about the city’s financial future: They were unquestioningly optimistic that future tax revenues for the city would continue to grow. I wasn’t.

The growth in the city’s tax revenues were due almost wholly to the real estate boom and the corresponding consumer spending that came with home equity loans.

I asked Maria Kachadoorian, then, what might happen to Chula Vista if the real estate boom subsided. What happens, in fact, if Chula Vista’s growth subsided?

“I really don’t think there’s any way that Chula Vista could not grow,” she said then.

Wasn’t it at all possible, I asked, that real estate in Chula Vista could go down in value?

“I would consider that unrealistic,” she said then. Remember, this is exactly a year ago.

Her confidence spurred us to study it a little more for this editorial.

Here’s part of that piece, titled “Don’t Bet on Real Estate:”

Chula Vista officials in May released a five-year projection of revenues that envisions the city collecting an increase of 7 percent in its property taxes each year until 2011.

The city’s director of finance said that she and others are in the process of updating those projections to perhaps better account for the deflating home prices.

This will be difficult for Chula Vista to do. It has already promised its police officers, for example, very healthy pay increases for each of the next five years. This year, the police will receive a 10 percent increase in pay. In 2007, 2008, 2009 and 2010, the police are guaranteed raises of 4 percent, 3 percent, 4 percent and 4 percent respectively.

The city of Chula Vista, however, is guaranteed nothing in increased tax revenues. It should not, nor should any planner, assume that they will come just because recent years have been so robust.

Fast forward a year — amazing how things change. Foreclosures in San Diego’s southern suburb are exploding. The housing market is collapsing.

And now check this out from Kelly Bennett‘s excellent news story today about Chula Vista’s hangover from the real estate party (emphasis added):

The city is grappling with its budget, revisiting and potentially revising the promises it made while the party raged. Officials may even try to renegotiate some of the terms of the labor contract struck with public safety employees — a year after the city boasted about snagging them from elsewhere.

“It’s pretty bleak,” said Maria Kachadoorian, finance director for the city of Chula Vista. “The reality of the market as it is today is … we’re hit a little harder than most. The biggest shift is that the assumptions of growth clearly can’t be there.”

Wow. What a surprise. And to the cops who were fleeing to Chula Vista: Get ready, they’re going to start pulling the same stunts San Diego did.

I do have to offer some praise. Kachadoorian and Chula Vista officials did adjust their future revenue projections downward like we had suggested they do.

But things still look bleak.

— SCOTT LEWIS