July 3, 2013

By Wayne Lusvardi

The pathway into municipal budget distress is not the same for every city in California. No known city in California has attempted to cut its general fund budget nearly in half. But that’s what Adelanto is trying to do by cutting its budget from $5.5 to $2.6 million.

And few cities in California have a budget document that is as honest as Adelanto’s. Budgets too often rely on “gimmicks” to hide problems and shortfalls. But not in the city whose motto is, “Progress By Design.”

Located in the Mojave Desert of Southern California, Adelanto gets its name from the Spanish word for “progress” or “advance.” But despite measures to drastically cut its budget, Adelanto has regressed to a $2.5 million deficit and the city is considering declaring a “fiscal emergency.”

If taxes are not increased, this could also lead to the city declaring bankruptcy in 2014. Raising taxes could be tough on a city with only 7,300 households, nearly a third of which live near or under the poverty line. Raising the existing utility tax by $2.5 million per year, as the city proposes, would reflect a $342 per year tax increase per household.

The median household income in Adelanto is $42,208 per year. This is $19,424 less than the statewide median income of $61,632 per household. About 28 percent of residents of Adelanto live below the poverty level, compared to about 14 percent for the statewide average.

City government living off sewer fund

The biggest budget problem is not a decline in tax revenues as much as it is an inability to sustain the level of funding for an incorporated city in the first place. The largest current tax generator to the city’s general fund is a $2.2 million annual transfer from the Public Utility Fund of utility bill revenues for a proposed sewer treatment facility. Adelanto’s city government is dependent on a sewer project to patch its budget. What happens when this project is finished?

In recent years, the city has balanced its budget only by using $5.1 million in the remaining proceeds from the $28 million sale of the city-owned and operated Adelanto Community Correctional Facility in 2010. Adelanto had gotten into the corrections business to supplement its low private economic base. But now the state has vastly reduced or taken away redevelopment funds and diverted property taxes back to schools. This forced Adelanto to sell its correctional facility as a stopgap measure to plug the hole in its municipal budget.

Affordable housing an artificial jobs program

When the state took away redevelopment from cities in 2010, however, it allowed them to retain their affordable housing funds. Under California’s former redevelopment law, 20 percent of the property tax increase created by commercial redevelopment was designated for affordable housing. But creating government jobs producing affordable housing in Adelanto would at best be an artificial jobs program.

Zillow.com reports the median home sales price in Adelanto is $116,000. Assuming a 30-year fixed mortgage, 20 percent down payment and 5 percent interest rate, the typical monthly housing payment in Adelanto would be $498 per month.

The U.S. Department of Housing and Urban Development’s affordable housing formula calls for no more than 30 percent of gross household income to go toward housing. In Adelanto, HUD’s affordable housing formula would equate to about $1,055 per month maximum mortgage payment. Houses typically rent from $750 to $1,250 per month in Adelanto, according to Zillow.com.

So the private marketplace is already producing re-sale and rental housing at a much lower price than even HUD standards. Nonetheless, the State of California Department of Housing and Community Development has mandated that Adelanto must rezone 40 acres of vacant desert land for multi-family housing. This would only add to the burden of public services that Adelanto must provide without adding any economic base to support it.

Adelanto history is depleted water basins and budgets

Ironically, the history of Adelanto has not been reflected by progress, but by the depletion of natural and financial resources. The city was once known for its apple tree orchards grown in the middle of the desert until in the 1950’s, when the local groundwater basin became overdrafted. By 1990, the nearby City of Barstow had to sue Adelanto and other users to get a court to oversee management of the Mojave Groundwater Basin.

Adelanto’s history is a story of depleted water basins and longstanding depleted municipal budgets. The Mortgage Bubble and Redevelopment Bubble covered up Adelanto’s chronic municipal budget deficit issue for decades.

California’s Solar Initiative database indicates only 21 installations of rooftop solar systems in Adelanto since 2007, hardly enough to help impact a distressed community with jobs or decreased electricity bills.

Adelanto is not the only high desert city in San Bernardino County is budget distress. Adelanto has joined Apple Valley, Hesperia and Victorville in exploring the feasibility of forming a regional police and fire agency, instead of contracting with San Bernardino County for such services.

The biggest economic generator in Adelanto has been government, not industry or commerce. Ironically, if the city merely dis-incorporated, letting the county take over all services, its budget problems might disappear altogether. But this is not going to happen when municipal employment is a source of six-figure jobs for a few people in a community without much economic mobility. The prospect of a government or school district job for a few in such struggling communities is often more symbolically powerful than reducing the burden of government for everyone.

But history has shown that more government hasn’t provided a pathway out of Adelanto’s budget problems. Less government by dis-incorporation is a potential option, but not a politically viable one.