The Wall Street Journal is reporting on the plight of Vallejo, CA today. The Journal reports that Vallejo is already down 20% of its police force since January and could loose another 20% of its force by the years end.
California Cities Cut Police Budgets - WSJ.com.
This is just one of the effects that cities are experiencing due to lost revenue from development fees and property tax revenues. City councils bought into the myth that real estate would continue to go up in value indefinitely and city services would be adequately funded.
An underfunded police force will likely affect real estate values in Vallejo and other municipalities like Vallejo. If crime rises and the perception of safety decreases, real estate values in some areas of Vallejo will likely decrease as neighborhoods become less desirable.
This could be an unending downward spiral for cities as property taxes are assessed on transfer value in California due to Proposition 13. Lower real estate values would generate lower property tax revenue and the city would have to cut more costs from their budget.
This is a key reminder to real estate investors that local government issues can affect long-term real estate values.
Deals in cities with bankrupt or poorly funded city coffers should be given a higher degree of scrutiny and underwriting.
Tags: Bancruptcy, California, Investing, Real Estate Investing, Vallejo, CA, WSJ
