San Diego Housing Market News and Analysis

If Stockton makes this work I would expect a flood of City BK's soon after.

Yup....

One can only hope so.

...Stockton's finances collapsed along with its housing market, forcing city officials to slash $90 million in spending in recent years and a quarter of positions across agencies.

Despite the cuts, Stockton has not been able to avoid recurring deficits. Its revenue is weak and its financial troubles have been compounded, according to city officials, by generous pay and benefits for city workers and retirees and too much debt taken on by the city when it enjoyed a home-building boom in the early part of the last decade that transformed it into a distant bedroom community for the San Francisco Bay area.

Many of the houses built and bought in that boom have been abandoned, repossessed and sold at deep discount as Stockton has been at the top or near the top of lists of housing markets suffering a glut of foreclosures in recent years...

As I've always maintained, the excessive formation of CFD's (in this example, dozens of them encroaching on and occupying CA's agricultural heartland) along with the subsequent bond selling and building on all that CFD-encumbered land (especially in the absence of nearby well-paying jobs) is what got the City of Stockton into the this mess to begin with.

After about 1998, almost ZERO cities and counties in CA made contracts guaranteeing a health benefit subsidy to non-sworn retirees and some did not even guarantee them to sworn retirees. This benefit is revocable at any time. Stockton can (and should) take away this benefit from all their current annuitants who were not guaranteed the benefit. And they likely will if they have not done so already.

The passing of the Mello Roos Community Facilities Act (MR) and its later implementation among cities and counties was THE catalyst which fueled rampant millenium-boom building boom everywhere in the state where there was any land at all to spare. The subsequent "bust" was both a byproduct of overbuilding (made possible by the MR bonds) in conjunction with "loose lending." Today, most jurisdictions who approved these CFD's don't even have enough employees on staff to service their huge population influxes of recent years made possible by their creation of these CFD's in conjunction with Big Development.

This was all prophesied by my SD City College RE professor in 1982 (just after the act had been signed by the Legislature). It turns out he was spot on.

http://codes.lp.findlaw.com/cacode/GOV/1...

A BK can sometimes be the only way to get the public pension people to the table for some serious negotiation on trimming down those pensions. Let's see if the Gov (taxpayer) comes in a bails out the pensions.

BG,

Your bolded comment is what stood out to me as well. That, and the fact that **revenues have been slashed** because of the deflating bubble.

But it's all the fault of govt workers, right? :(

Why is it ok for the government to manipulate things to the benefit of the public sector workers but not the housing market? Let's rip off the bandage and let the bleeding begin so we can make some meaningful headway in controlling run away government spending. Some big cities need to fail so we can create a better more sustainable system. If its ok to let housing values crash it's ok to let public pensions crash also. You can't have it both ways

Hopefully San Diego is next. It might takes a few years.

Well, it's official: http://www.cnn.com/2012/06/27/business/c...

You must admit that housing was never allowed to truly "crash." The GOV has and is propping it up with numerous "machinations" that favor debtors over savers and the irresponsible and stupid over the wise owners and renters who plugged along for the duration of the "bubble" and kept their heads down.

Thus, the housing bandaid was never really "ripped off" and the housing market was never allowed to properly heal.

I think the "price upholding" today that you are seeing is the result of a dearth of available inventory, stemming from the "head-down" owner-types not wanting to market their properties in competition with the ignorant and debtors (or both in the same pkg, lol) who were/are able to "short sell" their way out of their debt.

And rightly so. There is a HUGE difference between a seller who will satisfy all trust deeds they signed and one who will not (or an institutional seller). When the "head-down" types (with integrity) finally decide to sell, they won't be asking for "debt forgiveness" for past financial transgressions (caused from living beyond one's means).

It's not a level playing field.

I'm really sorry to see this. As a child, the grain elevator view of Stockton and smell of feedlots there represented to me the Capitol of a vast agricultural foodbasket for the entire nation. It was a proud city.

I think before pointing the finger at public employees and unions, one would do well to actually examine their list of creditors. As soon as it is available on PACER, I will do so.

Nothing wrong with bankruptcy. It's a good way to start over. There is no shame in bankruptcy.

You're "jumping the gun" here, flu.

If you're referring to the huge patchwork of laws regarding collective bargaining of state, county and local public employees in CA, then I've always maintained "things" will have to be "rewritten" or "changed" by the CA Legislature and ONLY them. Game is NOT over yet. Stockton's BK "trustee" likely hasn't even been appointed yet and there has been no BK hearing on a possible "discharge" of contractual debts (pensions owed) to retired city workers.

Yes, the "low hanging fruit" is the retiree health-benefit subsidy. Not sure why the city has decided to take a year to phase them out. They were likely never contracted for in the first place.

It will be very interesting to see if the City's lawyers even ATTEMPT to discharge debts incurred thru contractual obligations to their workers' unions.

This "fat lady" hasn't even begun to practice her scales yet :=0

A good budget fix for everyone would be to lower health care costs to 10% of GDP (from the current 18%) and implement a zero tolerance for obesity.

Allow employers to fire people who are obese. That will force people to control their weight (and health care costs) if they wish to keep their jobs.

...Since 2009, Stockton has cut $90 million from its budget, she said. The city has reduced its police force by 25%, its fire department by 30% and other city jobs by 40% but has not been able to get itself financially stable. And then, said Johnston, there was the housing bust...

http://www.cnn.com/2012/06/27/business/c...

The $64M question here is, "How much (needless) hiring did the City have to do (both sworn and non-sworn) SINCE its "1990's era" contracts with its unions were hammered out for wages and benefits, pensions and retiree health subsidies?"

The $128M question here is, "Why did the City feel they had to do that much hiring??"

(Don't ask the questions if you don't already know the answer ;=))

Stockton's ills are simply a repeat of Chula Vista's, who now has roughly the same population. Chula Vista grew by about 60,000 new housing units during the millenium boom in the exact same way that Stockton did but has already massively laid off over two years ago. HOWEVER, Chula Vista is coastal, 4-9 miles from the int'l border and the western portion is 10-13 miles from dtn SD, one of CA's major cities and job centers.

Stockton is an inland agricultural city and doesn't have the same (more versatile) characteristics of Chula Vista. When a young "transplanted" Stockton family's main breadwinner loses their employment (which was already likely 60+ miles away), they're toast and have to relocate. In Chula Vista, this is NOT so. Most have established family nearby, some with family on both sides of the border and a much larger, closer and more diverse job market to choose from.

The sad legacy that we are left with in both cities (as well as many more in CA) is LESS employees to serve many THOUSANDS MORE residents.

Mello-Roos Bonds do NOT pay the wages, benefits and retirements of the city/county workers who are obliged by law to serve the residents of CFD's who pay them. The bonds can ONLY be used for infrastructure and to fund schools.

The councils of BOTH these cities were VERY short-sighted when they made these backroom deals with developers to form the CFDs. They had stars in their eyes and all they could see was the teeter-fund residuals from new property tax coffers. It is now patently obvious that they gave no thought to HOW MANY MORE EMPLOYEES it would take to service their city if it grew by 100%+ over 5-8 years! In addition, did anyone in power in Stockton have ANY IDEA where all these new homeowners would WORK?? Did they think they would be able to pay their PITI and annual MR cleaning feedlots? Or even supervising the cleaning of feedlots?? LOL ...

Gas is nearly $5 gal in SF and the peninsula and a little less than that in the east bay. Even a Lawrence Livermore Lab worker (35-40 mi one-way) living in Stockton would have to fill up 2-4 times per week in order to live in "cheap" Stockton and work in Livermore.

What were they thinking??? The answer is, they weren't :=0

Brian: Dude, really? Substitute "black" or "gay" for "obese" and let's see how well that works, shall we?

You CANNOT legislate good behavior and the Leftist goal in terms of the perfectibility of human nature will never be realized.

LIBERTY IS THE FREEDOM FROM COERCION.

BG: I remember travel/exhibition games to Modesto, Stockton, Fresno and (gasp!) Yuba City when I was a kid playing Pony League. Growing up in Santa Clara County, these places represented a side of California I had never seen before. I remember a spoof soap opera with Carol Burnett called "Fresno", where the tagline was, "The Power. The Passion. The Produce!" I knew about the agricultural side of California, I just hadn't seen it before. It was a powerful reminder of how truly diverse California used to be, in terms of industry and productivity.

Of course, I also remember the GM plant in Fremont and when there were Navy bases at Treasure Island, Mare Island and Vallejo. Days gone by...

BG: You raise a fair and valid point (as CAR did as well.) This isn't a one-sided issue (meaning we cannot lay the blame solely at the feet of the public sector unions.) We also need to evaluate the impact, in terms of lost revenue, of Prop 13 and the "boom and bust" style of budgeting the State of California uses (and the impact becomes glaringly apparent when you juxtapose the revenues present during the run-up to the dot.bomb bust versus those following), as this budgeting is heavily skewed in terms of dependency on the state's huge earners.

There is plenty of blame to go around. However, we're also out of time. We need to focus on fixing the problem, versus fixing the blame.

That was an AWESOME mini-series spoof of falcon crest/dynasty/etc. It was totally hilarious.

http://finance.yahoo.com/news/stockton-c...

From the link, the reason why they had to file BK:

"Stockton has suffered a sharp drop in revenue since the collapse of its once red-hot housing market, forcing it to cut more than $90 million in spending in recent years.

The housing boom transformed the farming city into a distant bedroom community of the San Francisco Bay area, and the bust put it at, or near, the top of national foreclosure rankings in recent years."

..........

^^^This^^^ (not "union goons") is the reason most municipalities are in such big trouble.