San Francisco plans for dotcom earthquake
Quake zone San Francisco is preparing for a different kind of Big One.
Municipal officials are drafting an "economic resiliency plan" - one of the first of its kind in the US - to ensure the city of 865,000 can better withstand a financial earthquake akin to the one that hit markets in 2008 and left some US cities on the verge of economic ruin.
San Francisco leaders are still haunted by memories of the dotcom bubble of the early 2000s and the Great Recession, which caused the largest collapse in state revenues on record and forced cities to cut police spending, close libraries and wade deeper into public-pension debt.
Some cities and states are trying to ensure they aren't caught off guard again by boosting reserves and girding their residents against the next collapse. Utah is stress-testing its budget to find weakness in advance.
"There are things that you need to do to prepare your house so it doesn't fall down," said Todd Rufo, director of the San Francisco Office of Economic and Workforce Development. "We haven't forgotten what 2008 was like and that's why we want to be as prepared as we can be."
A tech boom spurred by companies like Twitter, Uber and Airbnb has transformed San Francisco into one of the hottest economies in the US.
The unemployment rate was 3.1pc in April, the lowest since 2000, and home values are at a median of $1.1m, the largest among the 50 biggest US cities.
Mayor Edwin Lee has just released a record $9.6bn budget proposal, but officials haven't forgotten when a projected $460m shortfall in the fiscal 2010 budget forced 1,600 job cuts, the closing of city-owned recreation centres, reductions in street cleaning and a programme that provided subsidised meals for seniors, and the need to pull $79m from a rainy-day fund. State-wide, the cities of Stockton and San Bernardino filed for municipal bankruptcy.
"The impacts of the last economic downturn resulted in near double-digit unemployment with thousands of residents out of work and our small businesses left struggling," Lee said in a statement. "We must not take for granted the vibrancy of our economy."
San Francisco's report, to be released in about eight months, will offer step-by-step actions aimed at protecting jobs and industries and spell out how to best spend tax and federal stimulus funds on public works projects to prop up the economy.
Some local governments aren't doing enough to prepare, given that the current economic expansion that's heading into a seventh year is projected to end in the next two to three years, said Dan White, a senior economist at Moody's Analytics in West Chester, Pennsylvania.
"I haven't seen many cities or counties focusing on this, especially from a stress-testing perspective, which scares me a little bit," Mr White said.
While tax revenue collected by state governments is above pre-recession peaks, many municipalities have to grapple in the long term with depleted rainy-day funds and mountains of unfunded pension and retiree healthcare liabilities, he said.
"There's an acknowledgment that before too long there will be another recession," said Christiana McFarland, a research director at the National League of Cities in Washington.
"We're seeing that cities are becoming a little bit more fiscally conservative in some of their practices, particularly when it comes to preparing budgets."
New York Mayor Bill de Blasio's proposed budget for the fiscal year beginning July 1 includes at least $7bn in reserves to protect against a downturn. About $3.7bn is held in a trust fund to cover retiree healthcare expenses, yet may be used for any purpose in an emergency.
"New Yorkers know how easily things can turn," De Blasio said during his budget presentation. "It's troubling to think what might happen if economic difficulties around the country and the world came to rest here."
States are also readying for bad times by putting more cash in reserves. They lost $89.6bn in inflation-adjusted tax revenue from the recessionary peak in fiscal 2008 to the trough in 2010, said Don Boyd, a fiscal studies director at the Nelson A Rockefeller Institute of Government in Albany, New York.
While California's budget has recovered from the recession and has enjoyed several years of surpluses, Governor Jerry Brown repeatedly warns the good times won't last. "In any scenario, there are no halcyon days ahead," Mr Brown said in May when he updated his budget proposal for the fiscal year that begins July 1. (Bloomberg)