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A blog about the economy and the Sacramento-area real estate market.

January 16, 2009
How the housing crash cut your library hours
I'm just back from an interesting California Research Bureau seminar explaining how the housing crash is taking down the twin pillars of sales and property taxes - and is really starting to hammer budgets of 480 cities across California. As the housing meltdown continues with no end in sight, most cities are now facing mid-year budget corrections. Estimates are they have $4 billion to $6 billion less money than their budgets say they do - because the housing crash keeps getting worse.
 That means they'll be cutting library hours and park maintenance so they can avoid cutting police and fire budgets.

No big surprises at this session. It was just interesting to see the links between the real estate declines that started here in Sacramento in 2005 and the budget nightmares that are now in full swing statewide as home values fall. The speakers made it especially clear that the housing crash that started in the Central Valley and the Inland Empire of Southern California is now happening everywhere in the state.

Normally,  we don't use the word "bubble" much on this site. But the seminar did start with an amusing Powerpoint slide from Michael Coleman of Californiacityfinance.com
(everything you ever wanted to know about city finances in this state): a soapbox picture of "Mr. Housing Bubble. Cleans out your life savings." We take our humor where we find it.

Some points: California sales taxes peaked in the 2005-2006 fiscal year that ended June 30, 2006 - about the height of the housing market, and have fallen fast since. And while it's true that when sales taxes begin to rise it's a signal that things are turning around, Coleman said, "We haven't seen it yet." Neither did he expect to for awhile.

 Coleman's graph showed how declines in median home values almost instantly begin to drive down sales taxes. The property tax declines that sink government budgets are always a couple years behind the actual drop in home values. So, he said, governments are now feeling the full stresses of the deflation in home values that happened in about 2006. That means the plunging values of 2007 and 2008 haven't revealed themselves yet in government treasuries.

A second speaker, Mark Paul, formerly of The Sacramento Bee and state treasurer's office and now with the New American Foundation, said it will take until 2011 for sales tax revenues in California to get back to where they were in 2007.
That means "worse problems with the (state) budget next year, and probably worse the year after that," he said.

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