Economy Hurts California's Cities

As the national economy continues to suffer in the wake of Wall Street's meltdown, California cities are also grappling with the fallout of a troubled state economy hit hard by foreclosures and soaring unemployment.

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MICHELE NORRIS, Host:

The recent housing bubble popped early in California and a wave of home foreclosures has taken a big toll on cities there. As NPR's Richard Gonzales reports, some of those cities are now being pulled down even further by the financial crisis that bubble helped create.

RICHARD GONZALES: Forty-two million dollars - it's pocket change compared to the trillions at stake in the global economy. But in Oakland, California it's a huge budget gap that has to be closed. And Mayor Ron Dellums says it's going to be painful.

NORRIS: Oakland is living beyond its means. Clear, simple, straightforward.

GONZALES: Oakland is still reeling from the aftershock of the home foreclosure crisis. Taxes on real estate sales are way down and crime is up, forcing Oakland to spend more on overtime to keep cops on the street. Mayor Ron Dellums says that leaves him and the city council with two basic options.

NORRIS: You can shut the government down one day a week. Second option is to terminate 120 people.

GONZALES: But unions representing Oakland city workers say if the city has to slash services and personnel, it should start chopping at the top. Senior librarian Christine Saed explains.

NORRIS: Instead of cutting out the people who fill your potholes, who answer 911, the ones who are into blight abatement, the ones who do the parking meter services, the people that collect evidence for criminal trials, the actual service workers - that you could see as the roots and the base of the tree, and the top are the ones that make a hundred thousand dollars or more. That's what chop from the top means.

GONZALES: But Oakland isn't alone in its misery. Long before the Wall Street crisis, many Californian cities had their own mini meltdowns. Today, home values are still falling by double digits. The state has the nation's second highest unemployment rate. And California is still trying to avoid asking the Feds for a multibillion dollar bailout to pay its bills. In Los Angeles, Mayor Antonio Villaraigosa says his city faces a $400 million budget shortfall. It's even more dire east of LA in San Bernardino County, the epicenter of Southern California's foreclosure crisis. There, officials worry about future property tax revenues and every vital service from law enforcement to food stamps is threatened, says assistant county administrator Dean Arabatzis.

NORRIS: As the economy contracts, people that weren't needing services in good times tend to need more of our services in lesser good times. And so we have less resources to provide more services. It's a counter-cyclical event that it occurs every time we have a downturn.

GONZALES: Arabatzis says the full impact won't be felt for another year or two and Max Neiman agrees.

NORRIS: We're right in the middle of the jolt.

GONZALES: Neiman is an expert of municipal finance at the Public Policy Institute of California. He says cities are getting hit on all sides, declining local and state revenues combined with frozen credit markets and the prospect of a deep national recession.

NORRIS: If you use the metaphor of an earthquake, we're in the shaking stage and it's still shaking and we don't know when it's going to stop shaking and how much damage is going to result.

GONZALES: Earlier this year, the Bay Area city of Vallejo filed for bankruptcy. No mayor in California wants to follow that example. As a top administrator in Oakland puts it, we're not Vallejo yet, but we can see it from here. Richard Gonzales, NPR News San Francisco.

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