After the housing boom, opportunity dries up in Fernley, Nevada

Comparing the Divide: Fernley, Nevada and New Delhi, India struggle with distribution of resources. In both of these places, water access and quality are matters of life and death. Fernley and India also share a close Gini coefficient: 0.370 (Fernley) and 0.368 (India).

FERNLEY, Nevada — Evidence of the crash is everywhere in this high desert town.

It’s there on barren cul-de-sacs that jut off from the main commercial strip, a sharp contrast to a newly remodeled Starbucks, a highly prized Walmart and a sushi restaurant. And it’s there in the “Property Available” signs that litter a forlorn landscape. The glaring words “BANK OWNED” are stamped on many of the signs, a kind of scarlet letter of unpaid debts. In the worst-hit part of town, broken fences guard empty lots where nobody could afford to even start to build.

It began while most of the town was sleeping on an early Saturday morning in January 2008. A century-old irrigation levee gave way, unleashing flood waters that left hundreds of recently built homes in low-lying areas under several feet of water. The local Naval Air Base had to scramble helicopters to rescue stranded homeowners.

This is ‘big sky’ country, a historically dry plain ringed by mountains about 35 miles east of Reno. The residents here say the levee break marked the beginning of the end of a housing boom that had enticed thousands of eager buyers buoyed by historically low mortgage rates. Then before flood-damaged subdivisions could be fully repaired, Wall Street buckled under the weight of the national housing bubble and Fernley’s homeowners found themselves under water once again. Soon it had the highest foreclosure rate in America as lenders seized a full 25 percent of the town’s homes.

Water was what brought the promise of new prosperity to Fernley, and it was what helped wash it all away. After the flood, this town of 20,000 was left with a deep divide between those who have managed to hang on and a new, desperate underclass that has started to move in. It is a scene straight out of Steinbeck, and it has made Fernley a metropolitan area with a Gini coefficient, the metric for income inequality, that is comparable to India — Fernley at .370 and India at .368. In both of these places, the element of water very often defines the quality of life and ends up being a force that parts the rich from the poor.

“Nature did what it was going to do,” said Jim Dees, 54, a truck driver turned day trader who moved to Fernley in the 1990s and owns higher-elevation property that was untouched by the flood.

“You can’t stop water,” he added.

Fernley’s extreme dependence on the Truckee River for agriculture, industry, sanitation and drinking water is a familiar story in the deserts of the American West. Because water from the Truckee, which originates with the picturesque Lake Tahoe, must be divided up among several big upstream users including the city of Reno, residents here — many with a libertarian skepticism of both Democrats and Republicans — keep a sharp eye on the complex economic and political ecosystem of water.

A fallen home auction sign near an unfinished housing development in Fernley, Nevada. The area flooded in 2008 after an irrigation levee broke. (Kevin Grant/GlobalPost)

“We’re at the end of the road here, the end of the stream,” said Kate Rutan, office manager at the Truckee-Carson Irrigation District, which is responsible for maintaining the region’s irrigation system and was the target of multiple class-action lawsuits filed by flooded-out residents. “That’s our constant battle. Water in Nevada, it’s gold.”

Nevadans are a resilient bunch, quick to praise self-made success. But the housing boom briefly opened an express route to a better life for thousands of lower and middle class people, only to close it down just as many thought they’d arrived.

Jim and Diane Broullet, sipping drinks and playing electronic slot machines at Mary and Moe’s Wigwam Restaurant & Casino on a Friday night, know well the disappointment that accompanied the evaporation of their desert dream.

“We moved here when everything was high,” said Diane, her silver hair adorned with a Native American feather. “Now our house is worth half of what we paid. And we can’t leave because we own the house in full.”

The couple moved to Nevada six years ago from Arkansas, choosing Fernley because they couldn’t afford a home in Sparks, just east of Reno. In a place known for its legalized gambling, the Broullets’ real estate bet cost them big, including much of their retirement fund.

“It’s a sad state of affairs,” said Jim, who works from home these days, as does Diane. They don’t drive to Reno much because of the high cost of gasoline. “Fernley is very much hurting right now.”

Those who grew up here, like City Councilman Dan McCassie, remember a small farming town with just one traffic signal on Main Street.

“It used to be this little town, everybody knew everybody,” McCassie, 47, said from behind the counter of the well-stocked pawn shop he’s owned for several years, Main Street Pawn. “If you lied or did something wrong, it would follow you.”

Everything changed in the 2000s as property developers bought up farmland and water rights, seeing an opportunity to transform Fernley from a bedroom community of Reno into a commercial hub. Young couples and retirees flocked from California and the population more than doubled in just a few years. US Census numbers showed that in 2005, the area’s population growth was the third-fastest in the country, as Fernley surged from about 8,500 people in 2000 to at least 20,000.

“We gained the pluses of that growth,” McCassie said. “But we also got the negatives. We’re seeing home invasions in Fernley, Nevada. It’s just crazy, we never had that.”

And as foreclosures have pushed families out of their homes, investors have swept in to buy them at pennies on the dollar and rent them out. The effect has been to create a new, lower class of residents in a place wary of outsiders.

“I think it’s a lower income, it’s a different quality of people,” McCassie said. “You can drive around and tell which one’s a rental. There’s no lawn, there are cars everywhere, there’s trash.”

In hindsight, said the day trader Dees — chatting at McCassie’s pawn shop on a weekday morning as the councilman deftly alternated between the conversation, minding the store and fielding calls from his constituents — it’s clear there was too much growth, too fast. But it wasn’t just about how many, but where hundreds of new homes were built: in a dry catch basin where excess water naturally accumulates.

“People built houses where they shouldn’t have built them,” Dees said. “When that area flooded in the past, it was all farmland and so it was at worst a minor inconvenience. The city planners should have never granted building permits in the areas where they did.”

And in Fernley, residents say, there is plenty of blame to go around. Class-action lawsuits filed by flood-affected residents named the city of Fernley, its surrounding county, the Truckee-Carson Irrigation District (TCID) and companies who built and sold homes in the basin as responsible for the damage.

This January, more than four years after the flood, approximately 600 victims received a share of a $10 million settlement that was reached last year. After $3.3 million in attorney’s fees and $700,000 in other fees, the average payout was $10,000 per victim.

“When the housing explosion happened, the proverbial carrot got dangled in front of everybody,” Dees said. “All they saw was money and dollar signs. And everybody just lost focus.”

Icicles hang from a pier separating a public beach on Lake Tahoe, the source of the Truckee River, from a private one.  (Kevin Grant/GlobalPost)

Conflict over water is nothing new in Nevada, the driest state in the country. The state government has haggled for decades with California, with which it shares water from Lake Tahoe and the Truckee River. Government entities ranging in size and influence from the Department of Interior to local city councils are all engaged in a tangled battle over not just water access but water quality — including the level of development permitted on the shoreline of the vacationer’s paradise of Tahoe.

“It’s a huge quagmire and I’m not even getting into the political part of it,” said TCID’s Rutan, who remains concerned that powerful players to the west can outmaneuver towns like Fernley. “They’re not our enemy. There’s plenty of water, but not if they take it all.”

From resort development along Lake Tahoe to the Truckee Meadows Water Reclamation Facility treating the sewage of Reno and Sparks before pumping the reclaimed water back into the river, Fernley residents say in recent years they’re more worried about what’s in their water than how much of it they own — especially because they now pay extra for it, starting at approximately $400 per year.

Over the protestations of homeowners who didn’t want it so close to their properties, Fernley began building a new water treatment plant in 2007 after the Environmental Protection Agency reduced the legally acceptable level of arsenic in drinking water from 50 micrograms per liter to 10 micrograms per liter.

The city’s official website warns that “long-term exposure in drinking water, in excess of 10 micrograms per liter, causes increased risk of skin, lung, bladder, and kidney cancer, as well as skin-related problems,” risks that became widely known after the National Research Council published studies on arsenic in 1999 and 2001.

The water treatment plant became operational in 2009 with a price tag of $75 million, tens of millions more than initial estimates, causing Fernley to incur debt just at the time its economy was crashing down. As a result, last May the City Council enacted a Water Bond Debt Fee for all customers that may remain in place as long as 30 years — or until the debt is paid off. Many residents still refuse to drink the tap water; those who can afford it buy bottled.

The Fernley City Council also passed a resolution in December 2011 guarding its water interests against the residents at the true end of the Truckee, members of the Pyramid Lake Paiute Tribe. The resolution prevents the tribe from purchasing water rights from Fernley.

“After years of good faith negotiations between Fernley and the Tribe to ensure the long-term viability of Fernley while restoring water to Pyramid Lake, we are deeply disappointed that the Fernley City Council has reversed course and adopted a provocative, ill-informed resolution maligning the integrity of the Pyramid Lake Paiute Tribe,” said Tribal Chairman Wayne Burke.

Along the banks of the Truckee with Highway 80 rolling by in the distance, Reno resident Dave Stanley was teaching two first-timers how to fly-fish for brown and rainbow trout, flicking the long lines back and forth over their heads. The desert sun was partway out, warming the Alpine breeze.

“I’ve been making my living on the river for 30 years,” said Stanley, a professional fishing guide. He spoke highly of environmental groups, like the Nature Conservancy, that spent millions of dollars to study and restore large sections of the river.

But the economic boom and lingering bust in Fernley and the larger area concern him, he said.

“At some point you’ve got to say, ‘Hey, you can’t afford to expand anymore,’” Stanley said. “My personal view is that I hope somebody has done the math. The river can only support so many people.”

This story is presented by The GroundTruth Project.