The city of Hercules spent $35 million on this apartment complex project -- and then sold it for less than half-a-million-dollars.

Kai Ryssdal: While the national economy is growing, according to the raw numbers anyway, states and especially cities are still in no small amount of trouble. Here in California, there's talk of municipal bankruptcies. Stockton might soon become the biggest city in the country to go that route.

In the San Francisco Bay Area, the suburb of Hercules faced a similar fate. So city officials cut their budget and staff nearly in half. Capital Public Radio's Marianne Russ has more.


Marianne Russ: The tale of Hercules involves dynamite, some pretty explosive city politics -- and failed investments.

Bill Wilkins: This building right here is on part of what was the dynamite factory.

Councilman Bill Wilkins is showing us around Hercules. It was a company town for California Powder Works until the 1960s. The city's named for the signature product: Hercules dynamite. When the plant closed there was a boom of a different kind -- housing.

We drive through a cheerful new urbanist neighborhood. Craftsman-style homes are clustered close to parks and shops, but like so many California communities, home values in Hercules have plummeted. Wilkins says million dollar homes are now worth half as much.

Wilkins: I mean, right on my street, of the original neighbors that we had, half of them are gone.

Meantime, the city was pumping borrowed money into development projects that didn't pan out. The most spectacular failure is a group of unfinished apartment buildings. The city spent more than $35 million trying to build them, ran out of money and recently sold the complex for less than half-a-million. Here's Mayor Dan Romero:

Dan Romero: We lived high on the hog, and the reality is that in all the years in the city of Hercules, and all the money that was spent in redevelopment, they never built a building. There are no revenues coming in.

That's part of the reason the city was on the brink of bankruptcy. Romero took office last year after a recall election that led to a complete turnover of the city council. To close a multi-million dollar deficit, they slashed the city budget and staff nearly in half. The police force was cut by a third. No Fourth of July fireworks. And the cultural festival the city's had for over 25 years? That's gone too.

Councilman Bill Wilkins says the painful measures were necessary after so much overspending. But he believes Hercules is now turning the corner.

Wilkins: What we're going through now are the trials and tribulations of Hercules and it borders on a Greek tragedy, it really does. But the play is almost over.

The Powder Keg is a pub-style eatery in one of the city's newer neighborhoods. Nicolette Endriga owns the place. She says despite the city's mess, business isn't bad.

Nicolette Endriga: They still come out. They still have to eat, I guess, and have a drink once in awhile.

Alex Fernandez is eating lunch with his daughter Olivia. He says the cuts haven't affected him much either.

Alex Fernandez: You can see a little bit of infrastructure take a little bit of hit. It's not being kept up as well, especially at the city park, but overall, the quality of life for the people here, it's been fine.

But despite the city's fiscal failures, Hercules is still dreaming big. That old dynamite factory site? It's evolving again. This time into a major new transit center, shops, restaurants -- and even more housing.

In Hercules, Calif., I'm Marianne Russ for Marketplace.

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