Moreno Valley: Boomtown Going Bust Turns to Voters

Back in the 1980s, when this was the fastest-growing city in the United States and promoted itself as a “city poised for the 21st century, a city of promise,” the seeds of a municipal financial crisis were being sown.

But they went undetected, or ignored, and now--just a few years after its heyday--the city is on the brink of financial catastrophe.

A giant suburban bedroom of 133,000 people east of Riverside, Moreno Valley faces severe budget cutbacks--including reductions in police and fire protection--that can only be avoided if voters come to the rescue on election day with a self-imposed tax.

Awash in money just a few years ago, the city has become the victim of its own Ponzi scheme, experts say. It is no longer able to sustain its financial integrity because it was counting on the money from future growth to pay for existing services. But that growth, which initially bankrolled the city, screeched to a halt about six years ago, leaving the city overextended.

Only if voters approve a 6% utility tax on Nov. 5 will they continue to receive the same level of most of the services--fire, police, recreation--to which they have grown accustomed.

And the situation angers residents.

“This place was an overnight boomtown and we were fed a lot of promises,” said real estate agent Steve Nicodemus. “But it seems now like this was the worst-planned community in California. The city isn’t getting enough revenue. There’s been mismanagement at City Hall.”

If residents feel blindsided by the need for a tax, it may be because City Hall duped itself into believing that it could perpetuate the good times of the 1980s. And no wonder.

There was a time when developers could not build homes fast enough for the young families in Los Angeles and Orange counties who fled here in search of affordable housing. At the crest of the flood in the late ‘80s, more than 1,000 new tract homes were being purchased every month.

In the five years after the city incorporated in December 1984, the population mushroomed from about 45,000 to 118,779--a bumper crop of suburban pioneers sprouting where sugar beets, alfalfa and corn had once been harvested.

City Hall was seduced by the immediate--and illusory--spoils of growth. During those first five years, the city collected more than $36 million in developers’ permit fees to process all the home-building.

“Nobody honestly thought it would ever, ever end,” Rick Teichert, later the city’s finance director, said of the city’s dizzying run with growth.

But when the boom went bust, the city’s largest revenue stream--developers’ permit-processing fees--dried up. Only then did the city realize it had created a treacherous fiscal imbalance: a city of too many homes without a stable business and industrial base to support it.

“The city got hoisted on its own petard,” said Max Neiman, a UC Riverside professor who is a student of local government issues. “The leadership in Moreno Valley really failed its community.”

The city’s financial problems surfaced in 1991, when new housing construction bottomed out. Even after cutting the budget, the City Council still had to institute a 6% utility users’ tax to balance it. The tax generated about $7 million a year, replacing the developers’ permit fees as the single largest source of city income--more even than the city’s share of property and sales taxes.

But because of a controversial California Supreme Court ruling last year requiring voter approval of some taxes, a cautious City Council decided to let the existing tax expire at the end of this year, and seek voter approval for a new one.

In June, in a stunning rebuff to City Hall, the utility tax was barely defeated in an election that drew only 17% of voters. Awash in anxiety, the City Council decided to again ask voters for help again.

If voters again reject the utility tax, the City Council says that, after the first of the year, it will have to close one of its five fire stations and eliminate 21 of 59 firefighter positions, cut 46 of 162 police department personnel--including 28 sworn officers--and eliminate all school crossing guards.

Moreover, City Hall would be open to the public only four days a week, and maintenance and recreation programs would be curtailed.

And even with those cutbacks, the city would still need to tap $1 million from its $6-million reserve fund, but would otherwise remain financially stable.

If residents rebel at the severity of the cutbacks--especially in police and fire protection--and demand that they be restored, the City Council would have to deplete its reserves entirely, and in 1997, “we’d be out of money,” said Teichert, the finance director. “The situation would get catastrophic in a hurry.”

The utility tax deserves approval, supporters say, because City Hall is already lean--down to 140 employees from 231 employees in 1991--and the proposed cuts will sting every corner of the community. They note that with this tax, every dollar will stay in the city.

Critics counter that City Hall still overspends, needs to be held accountable for its past shortsightedness, and that it’s time to tell the bureaucrats that the reality check is in the mail.

Maverick City Councilwoman Bonnie Flickinger, a Libertarian, says she’ll vote against the tax because “it’s more money than the city needs. It’s time for a paradigm shift in how cities finance themselves.”

Outside a Home Depot store here, some voters expressed mixed feelings about the situation.

“I don’t have any faith in City Hall,” said Ray Diaz, a hospital technician. “Why reward them with more of our tax money?”

Bill Johnson, a utility company employee, said: “I can’t turn to anybody when I run short on money. Why can the city? I say, let them get rid of a few of the boys at the top.”

Others said they would grudgingly help bail out the city.

“If they have to get rid of as many services as they say, then it’ll be worth it to pay the tax,” said John Shaw, a retired Navy man. “I don’t like it, but I’ll do it because I live here.”

Michelle Protano, a homemaker and mother of two, agreed. “They have to provide enough police and fire protection. That’s the city’s job,” she said. “If I have to pay more for it, I guess I’ll have to. But I resent it.”

The dilemma facing Moreno Valley goes beyond the loss of developers’ fees as the city’s main revenue source. Urban economists say the city was shortsighted in allowing itself to grow pell-mell under the notion that growth is good and bigger is better.

The city became burdened with too much residential development, which does not generate enough property tax revenue to pay for the city services such development demands. Every new home constructed drained the city’s coffers over time, and the city needed the more lucrative tax base of commerce and industry--which hasn’t developed--to make up the difference.

“Sprawl is like steroids,” said Peter Detwiler, consultant to the state Senate Committee on Housing and Land Use. “At first, it seems to pump you up and make you look strong and powerful, but its prolonged use leads to a certain lack of potency.”

The sprawl was perhaps inevitable. With cheap land ripe for easy development, the town’s initial growth was approved by Riverside County planners even before the city incorporated.

By the second half of the 1980s, escalating housing prices in Los Angeles and Orange counties pushed wannabe homeowners to the Inland Empire. Anxious lenders accepted minimal down payments and developers’ flags pointed the way to sparkling new homes with instant lawns that could be had for less than $90,000.

The valley sparkled with new neighborhoods, bicycles and ball parks; a newspaper poll later declared that Moreno Valley was “No. 1 in family recreation” in Riverside County.

Moreno Valley today presents itself as a solidly middle-class community, where the median household income is almost $45,000. The population is 57% white, 23% Latino, 13% African American and 6% Asian.

But the city--hobbled in part by the recession that rocked the state--never established a strong and diversified retail and manufacturing base resilient to the whims of the economy.

In contrast, Palmdale--which has grown from 23,000 people to about 113,000 in 10 years--has not had to institute a utility tax to balance its budget. That city, which incorporated in 1962, has weathered a fickle economy on the strength of several long-standing redevelopment projects and a strong retail sales tax base, including a regional mall and an auto mall.

Even when Moreno Valley succeeded in drawing two similar sales-tax generators to town, it paid a price. It enticed both a regional mall and an auto mall into the city, but only after agreeing to a rebate to the developers of $23 million in future sales tax revenue generated by the two retail centers.

Further exacerbating the city’s fiscal woes were factors outside its control: the recession; the restructuring of nearby March Air Force Base and its net loss of some 3,000 personnel; the collapse of the real estate market that prompted the Riverside County tax assessor to devalue entire housing tracts, with a subsequent 20% drop in property tax revenue over the past three years; and Sacramento’s decision to take a greater share of property tax revenue from the cities to help pay for schools.

City Hall apologists say they didn’t anticipate the city’s fiscal downturn.

“Everybody was telling us we’d grow to 250,000 people, and we didn’t have any reason to doubt it,” said Judith Nieburger, who served on the City Council from the city’s incorporation in 1984 to 1992.

Surely with such population growth, business and industry--anchors to a strong civic economy--would follow, Nieburger and others believed. “We relied on our financial people at the time who said these are great times that will go on forever,” she said.

“We didn’t realize that money wasn’t being set aside at the time,” Nieburger said. “And nobody ever thought winter would come. We were in spring and summer, and winter was far, far away.”

Not only was City Hall ignoring the consequences of unbalanced residential growth or the possibility of economic downturns, but in its haste to market itself, it cut deals that further undermined the city’s fiscal integrity.

When staffers recommended how much the city should charge for developer impact fees, for instance, the City Council cut the amount substantially, said current interim city manager Gene Rogers.

The impact fees--money collected from developers to fund construction of streets, parks, flood control, police and fire stations and other infrastructure--were discounted, he said, “because the city wanted to be competitive” with other high-growth areas in the Inland Empire.

Today, the city needs a new police building, more library facilities and recreation centers, a new animal control shelter and signal lights at 10 intersections--and doesn’t have the money to pay for them, even if the utility tax is approved.

Former City Manager Norm King said that when he was hired in 1991, “it was clear the city was vastly overdependent on development fees.”

Paul Gill, former commander of March Air Force Base and a campaign organizer on behalf of the utility tax, said performing a post-mortem on how the city got in this position is pointless.

“You can play what-if games, and I’m tempted to myself,” he said. “But that was then, and this is now. We have to go forward, instead of saying, ‘The city should have realized where we were going.’ ”