Claremont Insider: Limits

Sunday, October 19, 2008


With the the economy tanking, the stock and housing markets plummeting, and a credit freeze just beginning to thaw, you'd think that there'd be some serious talk at Claremont's City Hall about what contingencies need to be in place for the inevitable hits the city budget is going to take. But don't hold your breath.

This past week, the credit markets loosened up enough for California to sell $5 billion worth of short-term revenue anticipation notes that allow the state to bridge the gap between now and the beginning of 2009, when tax revenue starts rolling in.

The news for California and local governments like Claremont isn't especially rosy, however. And, as the LA Times noted on its front page today, the potential damage will likely be widespread:

Some of the most dire problems are emerging in states such as California and Florida, where the housing collapse has been the most pronounced.

California lawmakers, who faced a $15.2-billion deficit going into the fiscal year, argued over the budget for months. In the final draft, state services took a big hit: Medi-Cal was temporarily cut by 10%, and the education budget was set at $3 billion less than last year.

The bad news continues to mount. Last month, the state's revenue fell about $1 billion short of projections. Gov. Arnold Schwarzenegger and legislative leaders have been meeting weekly to discuss the problem and are considering calling lawmakers to a special session. In Florida, lawmakers faced a similar challenge as they wrote their yearly budget. The plan they devised was nearly $6 billion smaller than the year before. It resulted in 200 net job losses, tuition increases, cuts to nursing homes and the shuttering of 13 driver licensing offices.

Now the Legislature is scrambling to patch a new $795-million gap. Lawmakers may face yet another multibillion-dollar shortfall when they sit down to craft a budget for the fiscal year starting in 2009. Declining revenue is just part of the problem in Florida: Education costs are soaring because of the passage of a 2002 class-size-reduction ballot initiative, and rising enrollment and healthcare costs are bloating the Medicaid program.

Budget woes engulfed more than 40 states beginning in 2001, a result of the dot-com crash. At the time, economists said it was the biggest fiscal crisis for states since World War II.

"If you look at some of the basics of the economy -- unemployment, the stock market decline, the decline in consumer spending -- there is some reason to fear this crisis will be worse," said Nicholas Johnson, an analyst with the Center on Budget and Policy Priorities.

Local governments, in particular, may get hammered harder this time around. In 2001, Johnson said, cities and municipalities, flush with cash from high property tax rolls, were able to pick up the cost of services that states had abandoned. But that will be more difficult now because declining home values have dragged down property tax revenues.

Yet, despite the obvious looming budgetary problems, no one in Claremont is talking, at least publicly, about the hard decisions that we may have to make. Rather than having an open, public discussion of our fiscal realities, the powers-that-be in town are carrying on as if the party's still in full-swing on the one hand, and on the other they sneak in things like trash collection rate increases based on false and misleading information.

The City took steps earlier this year to try to address reduced sales and property tax revenue by instituting across the board spending reductions and putting a hiring freeze in place. But we suspect that no one anticipated things like a nationwide 32% decline in Toyota auto sales - something that has dire implications for a city like Claremont which gets over 50% of its sales tax money from Roger Hogan's Claremont Toyota.

In trying to cement what she considers her legacy, Claremont Mayor Ellen Taylor has placed a lot of costly projects on the city's plate - an affordable housing project, Padua Park, a new police station, to name a few - but her real legacy may be committing the city politically and fiscally to things that will push the city's budget far into the red.

We like to believe in a limitless future, but that simply does not square with today's reality. We hope our city's leaders have the vision to understand that reality.