Hercules is similar in size and population to El Cerrito. In the early 2010s, the neighboring city of Hercules went through a staggering financial crisis. Costly redevelopment gambles, alleged mismanagement, and the fallout from the Great Recession left Hercules teetering on the edge of bankruptcy. This case study examines how a $38 million real estate project was sold for scraps, what led to the city’s distress, and the drastic measures taken to pull Hercules back from the brink.
A Redevelopment Dream Turns Nightmare
The half-built Sycamore North buildings in Hercules sat fenced off after construction stalled. The city invested $38 million into this redevelopment project, only to sell it for just $425,000. At the center of Hercules’s troubles was an ambitious mixed-use development that was supposed to be the crown jewel of a new downtown – sound familiar – except EC residents would be on the hook for cost overruns at the Plaza? Instead, it became a powerful symbol of the city’s misfortunes. By 2012, Sycamore North consisted of two half-finished, four-story buildings shrouded in plastic wrap – construction had halted when the money ran out. The city had sunk $38 million of public funds into this project, but those investments evaporated. In a desperate move, the Hercules City Council sold the unfinished buildings for only $425,000 – barely one cent on the dollar of what had been spent.
Even Hercules’s mayor at the time, Dan Romero, was stunned by the scale of the loss. “That project was a black hole. We couldn’t stop putting money into it,” Mayor Romero said of Sycamore North. “It would have doomed the city. We had to stop”.
In other words, continuing to pour resources into the stalled development would have bankrupted Hercules outright. Halting and selling the project for a pittance was the city’s only viable option, freeing Hercules from a financial sinkhole – albeit at a tremendous cost.
Mismanagement, Lawsuits, and Mounting Debt
Sycamore North, however, was only a sliver of Hercules’ woes.
The city’s finances had spiraled for years due to a storm of overambitious projects and poor oversight. (Think El Cerrito’s push for a new library.) Hercules had bet heavily on redevelopment—borrowing and spending to finance new housing, a waterfront transit center, and other civic projects—but many of these plans never materialized.
By 2012, the town was “awash in failed developments, lawsuits, and pricey consultant bills for projects that were never built.” Years later, voters would approve a tax for a new library and community center—this time with clearer plans and community support—reflecting both a hard-earned lesson and a cautious step toward renewal.
In one instance, Hercules paid millions to consultants for a transit center that remained only on paper. In another, the city became embroiled in a legal battle after missing a bond payment, which briefly led officials to utter the dreaded “B-word” – bankruptcy – in court.
Lawsuits piled up as contractors and creditors sought payment, even as city officials tried to recover funds they felt had been misspent. Behind the financial chaos was a pattern of mismanagement and lack of oversight in previous years. The state auditor sent going concern letters and the city had a risk designation.
These risky deals, a lack of internal controls, and deficit spending left Hercules with huge debts and a structural deficit. By the 2011–12 fiscal year, even after slashing expenses, the city still faced an ongoing $1.6 million annual budget shortfall.
In short, Hercules was spending far more than it brought in – a recipe for insolvency.
Drastic Budget Cuts and Service Reductions
Hercules’s new leadership (installed after a local voter recall of the old city council) took dramatic austerity measures to avoid fiscal collapse. Over 2011 and 2012, the city effectively cut its general fund in half, reducing annual spending from about $18 million down to $12 million and reducing both its CalPERS retirement payments and unfunded liability.
This required painful choices. City Hall staffing was slashed by about 40%, meaning nearly half of the city’s employees lost their jobs. Those who remained had their salaries cut by 15%, and vacant positions were left unfilled. Every department felt the squeeze. City services and community life also took a hit. Hercules eliminated popular events and programs to save money – the farmers’ market, the annual Fourth of July parade, and the yearly Cultural Festival were all canceled.
Even the local library’s hours were reduced to cut costs. Fees for youth programs and childcare were raised. “We are a city in turmoil,” Mayor Romero lamented at the time, as residents began to feel the real impacts of the cutbacks. Perhaps most alarming, public safety was curtailed. The police department – which accounted for a large chunk of the budget – saw substantial reductions. Hercules cut its police force from 30 officers down to just 20, rolling back staffing to mid-1990s levels (when the city’s population was much smaller). On many shifts, only two officers and one sergeant were on patrol for the entire city.
Response times grew longer and detectives had to postpone non-urgent investigations. One police representative said he had to apologize to citizens more in a year than he had in his entire career, because officers couldn’t keep up with calls. Crime began to tick up, and talk of disbanding the Hercules Police Department entirely (in favor of contracting with the county sheriff) even surfaced as a worst-case scenario. These cuts underscored the dire situation: even core services like policing were on the chopping block.
Emergency Tax Measure: A Last-Ditch Lifeline
By mid-2012, Hercules’s leaders knew that cuts alone wouldn’t fix the budget hole. To stave off bankruptcy, the City Council turned to the voters with an emergency sales tax measure. In June 2012, residents were asked to approve a temporary half-cent sales tax increase (Measure O) to generate roughly $450,000 annually for the city. Even optimistic officials acknowledged this would not solve the long-term shortfall – after all, the deficit was several times larger – but it could buy Hercules some breathing room. “We don’t think [the tax] is enough to balance the budget… but it’s better than nothing,” the assistant city manager noted frankly. Hercules voters understood the stakes. That June, they overwhelmingly approved the half-cent sales tax increase, with roughly 75% voting in favor. This emergency tax became a crucial lifeline, pumping much-needed revenue into the city’s coffers over the next few years. City officials later credited the measure with helping Hercules avoid insolvency during its darkest hour. The new revenue, combined with deep spending cuts and some one-time asset sales (such as Sycamore North), allowed Hercules to pay its bills and continue basic services, albeit at a reduced level. As the economy improved, Hercules gradually stabilized its finances in the following years – but not before learning some hard lessons.
Summary: Key Takeaways from Hercules’s Fiscal Crisis
Overambitious Projects Can Backfire: Hercules invested tens of millions in grand development plans (like Sycamore North) that never paid off. The city poured $38 million into a project that had to be sold for just $425,000, illustrating how failed developments can wreak havoc on a city’s balance sheet..
Mismanagement Has Consequences: Lax oversight, deficit spending and risky financial decisions in the late 2000s led to serious mismanagement of public funds. Audits found missing records, unaccounted money, and even conflicts of interest in City Hall – problems that left Hercules in debt and facing lawsuits.
In short, the city spent far more than it could afford, and the truth caught up with it.
Drastic Cuts to Services and Staff: Hercules made painful budget cuts to avoid bankruptcy. Approximately 40% of city staff were laid off, and the remaining employees took pay cuts. Non-essential services were axed—community events were cancelled, library hours were cut—and even essential services like police and public safety were scaled back to bare-bones levels. Residents experienced reduced services and a lower quality of life as a result.
Emergency Measures and Community Support: Hercules turned to an emergency half-cent sales tax increase (Measure O) as a lifeline in crisis. Voters in the community overwhelmingly approved the tax hike, generating extra revenue to keep the city afloat. While not a permanent solution, this stop-gap measure was critical in helping the city pay bills and avert a complete bankruptcy.
Recovery and Lessons Learned: Hercules avoided bankruptcy through budget cuts, a modest amount in new taxes, and new leadership determined to restore accountability. The city’s near collapse is a cautionary tale about the importance of sound financial management in local government. Transparency, oversight, and living within one’s means are crucial—without them, even a small city can plunge into crisis.
Hercules’s 2012 financial crisis is a sobering example of how quickly fortunes can change when ambitious development dreams meet fiscal reality. It took years of sacrifice and reform to get Hercules back on track. Still, the city’s story now stands as an important lesson in financial prudence and the resilience of a community united to save itself from ruin.
Hercules Tax initiatives since 2012. Note: Hercules city didn’t just rely on resident-funded taxes; they implemented corrective action to get their bond rating sufficiently high enough to secure a Bond Issuance
1. Measure O (June 2012)
In response to a significant budget deficit and the threat of bankruptcy, Hercules voters approved Measure O in June 2012. This measure enacted a temporary half-cent sales tax increase, generating approximately $450,000 annually to support city services. The tax was set for a five-year term, expiring in 2017.
2. Measure N (November 2016)
To maintain essential city services as Measure O approached expiration, voters passed Measure N in November 2016. This measure extended the existing half-cent sales tax for an additional 20 years, ensuring continued funding for public safety, infrastructure maintenance, and other vital services.
3. Measure M (November 2020)
In the November 2020 election, Hercules voters approved Measure M, a general obligation bond measure authorizing the city to issue bonds up to $28 million. The funds were designated for constructing a new library and community center, reflecting the community’s commitment to enhancing public facilities.
These tax initiatives demonstrate Hercules’ proactive approach to fiscal management and community development in the years following its financial crisis.
Sources: Public records and city audit reports; Hercules website Bay Area news coverage by San Francisco Chronicle/SFGate , San Francisco Business Times, and Patch Media
El Cerrito Committee for Responsible Government (ECCRG) 