Valencia's City of Arts and Sciences, a seven-building complex including… (Angel Navarrete / Bloomberg )
VALENCIA, Spain — A 2009 snapshot shows the president of Spain's Valencia region cruising along in a $200,000 Ferrari.
It was Francisco Camps' victory lap, after presiding over the Formula One European Grand Prix and the America's Cup yacht race. Valencia was dubbed the "California of Spain" for its gorgeous coastline, modern architecture and mind-set. Construction of upscale homes and resorts was booming.
Four years later, that Ferrari photo has become an embarrassing reminder of Valencia's heady growth years — and how much has gone awry since then.
Camps resigned as regional president in 2011 to defend himself — successfully — against allegations that he accepted expensive suits as bribes. Dozens of other politicians and businessmen caught up in a sweeping corruption investigation still face trials. And Valencia ranks as Spain's most indebted region per capita — more than $28 billion in the red.
"Probably we are the main example of every single sin that has been committed in the Spanish economy for the last 15 years," said Vicente Pallardo, an economist at the University of Valencia.
With the advent of the euro, Spain saw the interest rates at which it could borrow money drop from about 15% to 3%, a rate until then enjoyed only by Germany and a few other northern European countries. With Spanish inflation relatively high, borrowing was practically free and Valencia officials could not resist.
"We had a strong desire to put Valencia on the map," said Elias Amor, an economist who worked for the regional government in the 1980s and 1990s.
"We didn't have a highway to Madrid until 1996 or 1997! There was a road, a terrible road filled with vans driving in all directions, very dangerous to drive on," Amor said. "The investments of the central government in Valencia were very low — the lowest in Spain."
While in two other regions, Catalonia and the Basque country, perceived neglect by the central government fueled regional separatism, in Valencia it fueled a building spree.
The eastern region had more miles of high-speed train tracks per capita than anywhere else in the world — a detail that caught U.S. Transportation Secretary Ray LaHood's attention on a visit here in 2009.
"He was very surprised, and he said, 'Wow, you are very rich! We are not able to spend so much money on building [trains] back home in the United States,'" Pallardo said. "But come on, it's the U.S.! We are not richer. Our per capita income is about 60% that of the U.S. And we were spending so much money on this kind of infrastructure — not necessary infrastructure."
Last summer, Valencia became the first of nine Spanish regions, out of a total of 17, to request a bailout from the central government. It received $3.5 billion in rescue money for 2012, and has yet to declare how much it needs this year. Its depleted regional bank, Banco de Valencia, is laying off half of its employees this winter after being sold to a competitor for 1 euro (about $1.35).
The bank was one of several troubled Spanish financial institutions for which Madrid requested up to $134 billion in bailout loans from Europe. The central government is already juggling its own fiscal deficits, plus 26% unemployment nationwide.
Corruption remains a problem, even at the highest levels of Spanish government in Madrid. Investigators are looking into allegations that Prime Minister Mariano Rajoy received under-the-table cash payments for years.
In Valencia, the legacy of the boom years is a changed urban skyline, and a pile of bills.
The most prominent addition was the City of Arts and Sciences, a seven-building complex constructed in a dried riverbed that features a planetarium, Imax theater, aquarium, opera house and interactive museums. The project broke ground in 1996 with a budget of about $335 million, which eventually swelled to more than five times that figure, $1.75 billion.
"It's the anchor of Valencian tourism. But all that investment in the City of Arts and Sciences ultimately took away from money available to put toward schools and other public services," said Teresa Galindo, cofounder of Valencia's "Wastefulness Tours," which leads tourists around the regional capital on Saturdays.
Galindo and her business partner point out government buildings where corruption investigations are underway and construction projects that were abandoned in the economic crisis. The tour includes Valencia's School No. 103, where elementary school students attend class in temporary storage trailers because the government ran out of money to repair buildings or build new ones to accommodate increased enrollment, she said.
"Citizens are beginning to see that even though it's very modern and beautiful, all this development had a very high cost for our society," Galindo said. "We can't invest in anything else now."
Frayer is a special correspondent.