City got financial bump during boom

Officials planned for reversal, spent funds on one-time expenses

BY VANESSA GREGORY, Californian staff writere-mail: vgregory@bakersfield.com Saturday, Sep 1 2007 8:45 PM

Last Updated: Saturday, Sep 1 2007 8:51 PM
As new homes went up in Bakersfield during the recent real estate boom, so did city revenues.

Bakersfield expects to take in $63 million in property taxes for the 2007-08 fiscal year.
The taxable value of Kern County property increased 12 percent for that period, according to the assessor-recorder.

Sales tax revenues -- the single largest contributor to the city's general fund -- spiked as well, rising $11.7 million, or 21 percent, between fiscal years 2004-05 and 2005-06.
Then the real estate market dipped, and sales tax revenues fell by about 5 percent to $63 million in the fiscal year that ended June 30, according to city estimates.
"We expected it," said the city's finance director, Nelson Smith.

Put together, sales and property taxes contribute $130 million to the city's $175 million budget, he said.

They fund the police and fire departments, Public Works, Recreation and Parks and other city services.

The city funneled most of the real estate windfall into one-time capital projects, such as road improvements, Smith said.

"We don't want to commit ourselves to ongoing annual costs if we aren't going to get ongoing revenues," he said.

But the city did hire new employees in recent years.

During the building boom, strapped city staffers worked weekends to keep up with the flood of building permit requests pouring into the city.

"We staffed up," said Planning Director Jim Movius.

He expects the city will manage to keep its new hires as the market cools, in part by bringing projects outsourced to consultants back to city staff.

While the building permit requests have slowed, the city continues to be busy and is now working on 18 environmental impact reports -- a record number, Movius said.
The city also beefed up the police force and firefighting staff, according to Assistant City Manager John Stinson.

Statewide, the real estate boom gave a much-needed boost to local governments, said Bill Higgins, senior staff attorney with the Sacramento-based League of California Cities.
"We kind of caught up," Higgins said. "We've been playing catch-up over the past couple of years because housing hasn't been paying for itself, especially lower- and moderate-priced housing, in connection to the amount of services they consume."

The incremental property tax increases allowed under California's Proposition 13 mean many older homes consumed more services than they paid for in taxes, he said.
Today's leveling off in the housing market won't necessarily batter local property tax bases, Higgins said.

The assessment roll -- which is used to determine property taxes -- is unlikely to drop, even if property values were to fall by 15 percent, said Assistant Assessor Tony Ansolabehere.
But a worsening economy could strain local governments in coming years.

"In downturns, there's a greater need for public services," Higgins said. "The pull
is on the demand side more than it is on the supply side."

Kern County New Home Sales Prices

Kern County New Home Sales Prices reach Thirty Six Percent in the $250,000 - $300,000 Range

MarketPointe Realty Advisors(WebWire) 9/7/2007 1:08:58 PM

Kern County, California- In the second quarter of 2007, sales in Kern County ranged from a low of $192,900 for a 1,095 square foot detached home in McFarland, to $659,990 for a 3,003 square foot detached home in Bakersfield. According to ResidentialTrends quarterly publication by Marketpointe Realty Advisors, Inc., an analysis of sales by price range shows that the largest percentage of sales (36 percent) occurred in the $250,000 to $300,000 range, with the $300,000 to $350,000 range capturing 26 percent. There were only 13 sales or 2 percent priced under $200,000, of which three of the sales were attached, while on the other end of the spectrum, 5 percent of the sales were priced over $400,000.

Arvin, McFarland, and Rosamond had positive price movement this quarter, while over the last year only Rosamond has experienced positive price movement. In Bakersfield, the detached weighted average price decreased 10 percent this quarter and is down 6 percent over the last year.

Fed cut could give housing market a boost?

Fed cut could buoy housing markets
By Les Christie, CNNMoney.com

NEW YORK -- The Federal Reserve's aggressive half-point cut Tuesday could provide support for a slumping housing market.

A quarter-point drop had already been priced into the market for Treasury bills and other instruments tied to mortgage rates, according to Richard DeKaser, chief economist for National City Corp. The deeper cut means mortgage rates may have a little more room to fall, giving support to prices.

Home prices are expected to slump through 2008

The Fed Funds rate affects a range of consumer loans including home equity and mortgages. Lower mortgage rates would add to the number of home buyers able to afford to make purchases, increasing demand for properties and buoying home prices. Buyers generally care less about the actual purchase price than they do about the size of their payments. If rates drop, so will monthly debt obligations

Interest rates for conforming loans -- those of no more than $417,000 -- are already reasonably low, averaging 6.31 percent for a 30-year fixed-rate loan.
But there's an important class of loans that might benefit from the big cut: the high-ticket home mortgages known as non-conforming or jumbo loans. These loans have no guaranteed secondary market because they exceed the $417,000 cap, and Freddie Mac and Fannie Mae will not buy them.

With investors wary about any loan perceived as carrying the least bit of risk, jumbo rates have risen in recent months. They carry rates about a full point higher than conforming loans. Jumbos are especially important in high-priced housing markets such as New York, California , Washington D.C. and Boston.

Jumbo rates may come down if the cut makes consumers more confident, according to Mark Zandi, chief economist for Moody's Economy.com.

However, the real problem in the housing market is not interest rates, according to Keith Gumbinger, vice president for HSH Associates, a mortgage industry publisher. It is that there is not enough money available for making loans.

"The liquidity problem hasn't changed," Gumbinger said. "The primary issue is trust between buyers and holders of debt." Investors holding worthless or heavily discounted paper are not eager to buy more.

As a result, Gumbinger said problems in the housing market problems are too entrenched for a Fed rate drop to have an immediate impact.

Trust can take time to rebuild. Something that might speed the rebuilding process is better-than-expected earnings from the major Wall Street banks. Tuesday, Lehman Brothers' reported higher-than-forecasted profit, which allayed fears about the wallop that the mortgage crisis may inflict on Wall Street. Goldman Sachs, Morgan Stanley and Bear Stearns are due to report earnings later this week.

Home prices in many parts of the country remain out of reach for average Americans, leading to slow sales and lengthening inventories of houses on the market. Also adding to listings is a flood of new foreclosures hitting the market.

That inventory is weighing heavily on housing markets, according to Zandi, and much of it will have to sell through before prices start to rise again.

It didn't help market confidence that venerated ex-Fed head Alan Greenspan came out and opined on the possibility of double-digit housing price declines, according to Dean Baker, an economist and co-director of the Center for Economic and Policy.

"That has to be very worrisome for anyone lending into these markets," said Baker.