Fire Chief

When Universal Pictures released the second Jaws movie in 1978, it came with the tag line, “Just when you thought it was safe to go back in the water.” It was the original movie’s scariness that made this tag line resonate.

Many believe that the terrorist attacks of Sept. 11, 2001, triggered this country’s latest economic recession. And there are some who watch with a wary eye at the current housing-market crisis to see if we’re in for this decade’s second recession.

As most know, the housing problems stem from questionable lending practices known as subprime loans. These loans were issued to those who may not have previously qualified for a home loan. The interest rates on these loans started small and ballooned. This ballooning caught many borrowers unaware and is sending them into foreclosure. These foreclosures and a slowdown in overall new home building could spell trouble for municipalities and their fire departments.

Earlier this year, the National League of Cities commissioned its annual study that looks at the fiscal conditions of cities. The researchers collected survey data from 359 city financial officers. For 2007, only one-third of the respondents said their cities were less able to meet their financial needs compared with 2006. However, 74% reported increasing fees, charges for services or property taxes in 2007. About the same amount reported increasing spending on public safety in 2007.

The report says, “The downturn in the real estate market will likely impact cities’ revenue collection in the next couple of years as assessment practices catch up with market changes.” The report also predicts that homeowners will continue to pressure cities for lower property tax rates. This revenue downturn will be compounded by increased spending demand for things like wages, health and retirement benefits, infrastructure and public safety.

“City officials are going to be facing difficult choices in the coming years — both to plan for the future and to fill gaps in revenue and spending levels,” said Donald Borut, the NLC’s executive director. “The purchasing power of cities is under tremendous pressure.”

The U.S. Conference of Mayors and the Council for the New American City hired Global Insight to prepare an economic analysis of the harm the housing crisis will have on cities. This study predicts that 2008 foreclosures will increase by 1.4 billion and represent homes with a combined market value of $316 billion. The report also speculates that property values will fall $1.2 trillion in 2008. And that, its authors say, will put a lot of pressure on property tax.

California could lose nearly $3 billion in property tax revenue and $1 billion in sales tax revenue. The 10 states examined in the study stand to lose $6.6 billion in total lost tax revenue. The study’s authors did say that these effects could be mitigated if lenders adjusted the interest rates for borrowers nearing default to avoid foreclosure. And, there are moves afoot in Washington, D.C., to relieve foreclosures.

As every fire chief knows, when budgets get tight either revenue must go up or spending must go down. And with nearly three-quarters of the cities surveyed by NLC having raised taxes or fees in 2007, one wonders if the politicians can go to the well again in ‘08. Getting new apparatus or new hires may be more difficult in the coming years.

I hope this economic downturn is, like Jaws II, not nearly as scary as the original. Yet it is prudent to keep a close eye on spending and be ready for a full-on battle to justify fire and emergency medical spending. The waters of 2008 and 2009 may be shark-infested again.