Dealing with debt: Sonoma County borrowers climb out from under mountain of debt
In the spring, the arrival of the coronavirus pandemic thrust the Sonoma County economy into its worst freefall since the Great Depression.
In two dizzying months, 39,000 people — 1 in 6 workers in Sonoma County — lost their jobs as public health officials ordered businesses to shut down and residents to stay home. More people were thrown out of work in March and April than in two full years during the county’s last major recession, the 2008 financial crisis.
The shocks have been devastating to individuals who lost their income or their business, forcing them to turn to a mixture of government aid, savings and borrowed money to make ends meet. As the pandemic enters its eighth month, it is increasingly revealing the economic disparities that existed long before the virus was detected in the county and began taking a disproportionate toll on Latinos and low-wage workers unable to do their jobs from home.
But amid the heartbreaking financial losses are reasons to be optimistic about the strength of the Sonoma County economy and its eventual recovery.
Going into the pandemic, Sonoma County residents had reduced the debt they owed on their homes, credit cards, cars and other loans to the lowest level in nearly two decades, The Press Democrat found during an analysis of 20 databases and interviews with 30 economists, banking executives, financial experts and ordinary citizens confronting the most tumultuous economic year in nearly a century.
The debt reduction represents years of tragedy, hard work, sacrifice, self-discipline and good luck. It can be a firm foundation for the Sonoma County economy as it emerges from the pandemic and tries to recapture the prosperity that was setting 21st century records when COVID-19 hit, experts said.
“I appreciate that small businesses are suffering. But the big thing to remember is that demand will come back. Don’t listen to the miserablists. Don’t give up hope,” said economist Christopher Thornberg, who delivered the fall forecast for the county Economic Development Board last month. “This isn’t the Great Recession. The pandemic hit a fundamentally sound economy, and that means a quick recovery once the virus is brought under control.”
The Federal Reserve Bank of Atlanta reported this month the U.S. economy may have had a 35.3% growth rate in the third quarter, Thornberg noted, though other Fed studies are somewhat less bullish. Thornberg expects the improvement in the U.S. economy to continue unless there’s a serious pandemic setback.
“There’s a huge amount of new wealth out there,” said Thornberg, founding partner of Beacon Economics in Los Angeles. “Yes, we had the worst quarter in our history in the second quarter. And we’re going to have the best quarter for growth in the third quarter.”
A different view
But the view can be starkly different at the personal level, where the pandemic is brutally dividing Sonoma County further into those who have resources, savings and manageable debt and those who don’t.
The optimistic forecast for the post-pandemic recovery is an elusive mirage for many: People in the hardest-hit industries, like hospitality, where economists say some businesses and jobs will never come back. People who don’t have savings and investments to help them ride out the storm. People burdened with too much debt. People who have never learned how to manage money in good times much less through crises. People who don’t have substantial equity in a home, now soaring in value.
“They can’t pay their rent or mortgage. They have several thousand dollars in credit card debt they’ve used to pay for utilities and food. For many, paying 50% or more on rent, it doesn’t leave much money for anything else. How do they survive?” asked Kathy Kane, assistant director of Community Action Partnership of Sonoma County, a nonprofit that gives assistance to about 11,000 mostly low-income people annually.
No one knows how many people in Sonoma County have been thrown into desperation by the pandemic. The first to feel the financial impacts were the 39,000 people who lost their jobs last spring, though half have returned to work in some capacity. Close behind were those who have struggled to survive even in good economies. More than 1 in 10 of the county’s almost 400,000 adults have no high school diploma, with few options beyond low-wage jobs, and 38,000 live in poverty. By some estimates, 31,000 of the county’s adults are undocumented immigrants, ineligible for government aid. A similar number of households are thought to spend more than 35% of their income on rent, leaving little margin for financial emergencies. Many of these vulnerable groups living on the fringes of the economy overlap, analysts caution. And there are untold numbers of people who appear to be prosperous but have no savings and are drowning in debt.