Cautious small towns prove bigger isn’t better

TOLLESON — Like the small community banks that dot their landscapes, small cities and towns that didn’t go all in on the real estate frenzy are having an easier time weathering the economic crisis than their sprawling peers.

The housing market bust and related credit crunch has fueled a worldwide economic crisis, and the U.S. economy has been dragging them down. But you couldn’t really tell if you drove through Tolleson or strolled through City Hall.

Here, in this town of 5,000 west of Phoenix, the outlook isn’t so gloomy.

“We’re holding our own,” says Tollseon Finance director Steve Baumgardt.

Many major U.S. cities recruit developers of single-family housing and thus rely heavily on the housing market for revenues. Until recently, homeowners began scooping up property as if playing a board game, despite the fact they were using risky credit schemes – high-interest loans, interest-only loans or loans with balloon payments – to secure such deals.

When the mortgage rates began to soar as the economy began to collapse, many people simply could not afford to pay their monthly mortgage fees. This lead to the seizure of thousands of properties that are still not fully paid off.

In Phoenix, the nation’s fifth-largest city with 1.5 million people, housing development boomed. But now at least 12 major developments are locked up in trustee sales, mechanic liens or Chapter 11 bankruptcy, according to a recent report from the Arizona Department of Real Estate.

Phoenix Mayor Phil Gordon told National Public Radio today that the city faces $250 million in budget cuts this coming year. That’s more than any of the last five years combined, he said, and residents could see the barest minimum of city services ever. Police officers and firefighters will not be laid off, he added.

In Tolleson, however, the development scheme and financial adjustments are a little simpler. Slower. Less risky.

The majority of Tolleson’s funds comes from sales and property taxes. The sewer, water and sanitation departments bring in a good share of money by charging residents operating fees.

Tolleson also has money in bonds, which are sold to large organizations or investment buyers, which further benefit the city.

Officials here focus on developing on the city’s heavy industrial background and neighboring retail opportunities.

“We currently have three apartment complexes that are doing fairly well,” says Tolleson City Manager Reyes Medrano. “Two more are currently being built to attract business for retail.”

Tolleson also cuts back on operation costs within their city. With an estimated operating budget around $45 million, city officials plan to do few layoffs and use the Internet more often for training instead of hiring outside consultants.

“We’ve cut back in hires, only recently putting in one to two positions” Baumgardt says.

Traveling expenses were also cut back, with only those pertaining to emergencies being on the priority list. This included computer help training for city technicians when it comes to new and better technology, but Tolleson has turned towards online training, which is just as helpful and cuts back on traveling costs.

“Three to four hours of online training is just as efficient as sending them [the technicians] out and costs much less versus traveling,” Baumgardt says.

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