A damning piece published by the Daily Sound has caused quite an uproar in the community after divulging information about the city loaning out millions of dollars in home loans to public employees (the article can be found here). The piece evidently touched a nerve of the city’s financial director, so much in fact that he felt compelled to write an email response to the mayor and city council members (which can be found here).
The facts are that 46 loans were issued since 2001, 10 of which were issued after Dec 2007 when the housing collapse started, with the last being issued in 2009. The total loans is now $4.4 million, of which $632,000 in interest and $188,000 in principle has been paid back. A lot of the homes are upside-down, and one of the loans is not current. The program was enacted by a liberal city council in an attempt to entice and retain public employees to work for the City of Santa Barbara. Since housing prices were so high, the program would offer employees a second mortgage that could be worth up to 15% of the cost of the house to help them with their purchase.
Flash forward to our current year and the City of Santa Barbara is facing a budgetary crisis. The $4.4 million that is being loaned out could have been used for libraries, pools, parks, recreation and other community services which are now on the cutting board to close the budgetary gap. They say hindsight is 20/20 right? The fact of the matter is the city was extremely short sited, and like many others it was under the illusion that the good times would keep on rolling. Thus, it enacted this program with the best of intentions, but with little financial prudence. The financial director admits in his article that “what’s happened to the real estate market is unprecedented and could not have been anticipated.” Unfortunately, ignorance is no excuse when you have other people’s money at stake. If they had done their homework and heeded the words of Austrian economists such as Peter Schiff, Ron Paul, Lew Rockwell, ect., then they would have been able to anticipate this housing crisis.
This gross financial negligence leads one to question, why was the city in the business of making home loans in the first place? Time and time again when the government tries to act like a business it fails miserably. Thus, this is why government should be kept small and focused on only the most specific tasks not handled by the private sector. When banks were not making home loans after 2007, the city of Santa Barbara was still offering them and this gave the public employees a special privilege not afforded by those in the private sector. It’s a very elitist mentality and one that completely perverts the concept of a “public servant.” Hopefully this example will outrage the public enough so that they will fight for reforms to curtail government power and cut back on financial waste (think government pensions). We cannot afford any more short sightedness or those who act based on their heart instead of their head.