The Los Angeles Times looks today at the creative financing cities in the state have used to pay for projects. Those means are landing them in some of the same trouble individual homeowners who used creative financing are in, the story says.

The story mentions the city of San Diego’s financing struggles this decade, and describes Chula Vista’s trouble.

Chula Vista is an example of what happens when a city gets hooked on debt.

Between 2000 and 2007, the city in San Diego County took on $648 million in new and refinanced debt to build a city hall, a police headquarters and other projects, including a segregated dog park to keep the terriers from nipping at the Dobermans.

None of this debt was issued with voter approval. The City Council presumed that rising revenue would allow it to pay the debt. Then came the economic downturn, and Chula Vista now is cutting furiously to meet its obligations.

I wrote recently about the impact of declining sales, property and hotel-room taxes on individual cities in the county, including Chula Vista:

To pay off its debts for its deluxe new City Hall, police station and other facilities built this decade, Chula Vista counted on receiving building fees for 600 housing units a year, a total of about $5.3 million.

Inspired by gangbusters development within its boundaries, the city built a lavish, sprawling new public center, paying for it partly with the development-related cash already burning a hole in its pocket. The rest it financed with bonds, pledging to pay off those loans with fees from the future building permits.

But the struggling city has received only 20 permits so far this year, four months into the new fiscal year.

The story includes a look at Oxnard, which faced a $150 million bill to fix streets, and no way to pay for it. The city had tried to get voter approval for a bond measure, to no avail. Borrowing against city property was at the limit.

With virtually nothing left to hock, the city came up with an ingenious way to take on more debt: It borrowed against future revenue by “selling” its streets to a city-controlled financing authority.

The creative borrowing techniques contributed to a large increase in debt for individual cities, according to the Times. Cities, counties and other agencies in the state borrowed $54 billion last year, nearly double as much as in 2000.

Many are in trouble:

Statewide, 24 cities and public agencies missed scheduled debt payments this year or were forced to tap reserves or credit lines to stay current, records show. That’s up from nine in 2006, according to the bond industry’s self-regulatory agency. …

“There are many cities and counties engaging in complex financial deals that they don’t really understand,” said Michael Greenberger, former head of the trading division of the Commodity Futures Trading Commission. “And now it’s starting to catch up with them.”


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