Do you think San Bernardino will rebound from bankruptcy as quickly as Orange County did in 1994?
- No (92%, 101 Votes)
- Yes (8%, 9 Votes)
Total Voters: 110
High foreclosure rates may bankrupt cities, a recent news article reports.
San Bernardino, Stockton and Mammoth Lakes each declared bankruptcy this year. The high foreclosure rates in all but Mammoth Lakes (whose bankruptcy was due to a court judgment) indicates a tangible connection between residential foreclosures and city insolvency.
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Foreclosures have further depressed already-low housing prices in these cities, thereby reducing city revenues due to plummeting property taxes.
Between 2006 and 2009, property values in San Bernardino dropped 65.6%. Though prices have increased since 2009, they remain at less than half their bubble value in 2006. Low assessed property values mean low property taxes, causing revenue shortfalls for local governments – something California is especially susceptible to under Proposition 13 (Prop. 13).
However, experts are wary of attributing city bankruptcies exclusively to foreclosures. Three bankruptcies in a row may be unsettling, financial experts acknowledge, but do not make a trend.
first tuesday take
Prop. 13, enacted in 1978, undeniably benefits homeowners on an individual level as it allows them to have their property reassessed annually and taxed based on the lesser of:
- the last purchase price received on the property; or
- the current fair market value (FMV) of the property, as determined by the county assessor.
However, what is good for the household finances of the individual in the short term is not always good for the whole. Thus, San Bernardino’s bankruptcy is evidence of one of the several repercussions of low property taxes: insufficient revenue to maintain solvency and municipal services. Further, this decreases the attraction of the city to new residents, quelling its ability to grow and prosper.
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San Bernardino and Stockton have been hit by manifold challenges to the stability of their respective housing markets. In addition to depleted property tax coffers, both cities have exceptionally high unemployment rates. In May of 2012, Stockton’s unemployment rate was 14.5%; San Bernardino’s rate was 11.8% — both higher than the California average of 10.8%, some 2% higher than national numbers.
Let’s trace the problem back to its inception. Which came first, high unemployment, or increased foreclosures? For both cities, high unemployment led to exceptionally high foreclosure rates, which blight neighborhoods and decrease property values, resulting in lower property taxes and reduced city employment and services.
Notice the cloying irony of this self-perpetuating cycle?
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Thus, the cities’ housing market recovery is impeded by more than just foreclosures; San Bernardino’s “location, location, location,” mantra may become transmuted in homebuyers’ ears as “underwater, unemployed, insolvent.”
The factors which led to the city’s bankruptcy, combined with the stigma resulting from its declaration, may significantly injure the desirability of property located in the region—a hugely influential factor in home sales.
But perhaps this news does not foreshadow such a gloomy future, after all. Orange County’s 1994 bankruptcy didn’t tarnish the region’s appeal to later homebuyers. Instead, the county maintains an image of relative affluence and success. Unfortunately, San Bernardino’s high unemployment rate (and less desirable location) distinguishes it from Orange County (which has an unemployment rate of 10.2%). This ultimately may be the difference between a brief, public gaffe and a more prolonged convalescence.
Which will be the fate of San Bernardino? Only time will tell.
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Re: “More city bankruptcies on California horizon?” by Market Watch
Current payouts to government workers can not be sustained, San Bernadino and many other communities will have to go bankrupt before unions see the light. We hope that happens before California becomes Greece.
Finally, the great majority of the American people are awakening to the massive and almost inconceivable fraud that has been perpetrated upon them by the banking elite not only just since 2008, but for centuries!
A group of Swiss scientists have run a super-computer program to ascertain the ties between banks and corporations worldwide. What they came up with is truly startling–a tiny handful of corporations controls–by means of cross-ownership and control–a staggering 80% of all the world’s wealth.
And here is what is even more startling: The most powerful inner group of that small circle of controlling corporations are banks. And, it doesn’t end there. The controlling banks are all owners of the FED. Yes, the FED is NOT and never has been a government agency, but is a privately held corporation whose owners are the big banks.
Information is coming forth from a new book just out (authored by a government official who was there behind the closed doors in 2008) explaining how obsequiously Hank Paulson, Timothy Geithner, and other government officials bowed to the whims of the banking elite during the crisis and ended up serving THEIR needs, not the needs of the American people.
The LIBOR scandal is the shot across the bow. It will continue to expand, as local, state, and federal governments bring lawsuits against the criminal parasites (bankers) that have sucked the life blood of mankind for far too long.
The goal will be to break the back of the Banking Cartel and finally free us all from the immoral and criminal manipulations that it perpetrates.
The problem is when I got out of the service in 1959 my dad said you can go to work for the government but your pay will be below that of the private sector but there is good retirement benefits. Today you have government workers making more than the private sector in like jobs and they have great retirement benefits. It is crazy that governmetn workers make more than the people that pay there jobs. The governemnt have to change there salaries and retirements to be more in line with the private sector or there will be many more cities, counties and state governments going BK. Government employees in unions is a slap in the face to the citizens of this country. Think about it, the unions are for tenure and to get a uniom employee that should be fired, fired is impossible. Take the Cal Trans employee that was inspecting bridges, he falsified reports got fired the unon got him back in his job long enough so he could retire and get tax payer funds when he should have been thrown in jail and not got a cent of retirement. Governor Brown is betting that the people of this state are going to pass the 1% sales tax hike and if you people vote for it you dserve what you are getting form this union run state with the democrats in control.
Prop 13 is irrelevant in that many properties were sold at the height of the market, anyway. This turns on fed reserve policy and governments broken theory to create unsustainable hyperinflation to fill their coffers by hyper inflating the real estate property tax. The public sector can not keep paying themselves a higher salary then the private sector and giving themselves merit raises unabated statewide while private sector jobs go overseas. The private sector will never recover while supporting a hyper-inflated public sector life style.