Bursting Housing Bubble to Hit Local Governments

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(Sacramento, CA)
Monday, October 29, 2007

Sacramento certainly isn’t alone here, though it’s the first local city to publicly don the doom-and-gloom attitude.  In fact, the whole region’s heavy reliance on development revenues has become a double-edged sword.

On the one hand, the city’s growth has let it add more programs and employees in recent years.  But now, as the housing market spirals downward … 
“We’re seeing our revenue growth fall from record levels to very low levels.” 
… says the city’s finance director, Russell Fehr.  But Sacramento State economist George Jouganatos sees a silver lining. 
“Not to sound too gloomy, but it’s pretty normal.  It’s the after-effects of a financial bubble, you might say, that has cracked.”

Jouganatos says the city will have to become more efficient to reduce its costs.  Plus, he says, the Sacramento region won’t fall too far.  The State Capitol – and its employees – aren’t going anywhere. 
City Looks at Budget Cuts

Fehr says that’s why Sacramento’s being proactive. 
“What the city of Sacramento is trying to do is deal with the budget problem we know is coming in an open and forthright way and to start now – rather than putting off the start later - to try to get to the point where we have a sustainable budget.”
But that means hiring freezes, Fehr says, along with cuts in discretionary spending like new cars and computers.
Both Fehr and Jouganatos believe other local cities – and Sacramento County – will soon face the same budget problem.