It was the municipal equivalent of an extreme home makeover.

Over a little more than a decade, the tiny city of Manassas Park — population 15,000 — replaced, refurbished or added onto nearly every public building in its 2.5-square-mile confines. It built a fire station, police station and community center. It expanded all of its schools. And it paid for the nearly $130 million tab with borrowed money.

But even before the last brick was laid, the housing market in Manassas Park crashed, sending one in four homeowners into foreclosure and leaving many others underwater on their mortgages. Median home prices tumbled as much as 60 percent. Property tax revenue fell off a cliff. By the time the $20 million community center was finished in 2010, the city was in a position familiar to millions of Americans: digging its way out of debt.

“To say the housing market had an impact on us is an understatement,” said Michael D. Wine, chairman of the Manassas Park School Board. “We’re a small city. Being so small, even the little things are bigger for us.”

Cities across the country are in similar straits, mired in the long tail of a historic housing meltdown and recession. Many will be coping with the financial fallout of the bust for years to come even as the housing market recovers, said Michael Pagano, a municipal finance expert at the University of Illinois at Chicago.

The pain is most evident in California, where three cities have declared bankruptcy this year: Mammoth Lakes, Stockton and San Bernardino.

By comparison, municipalities in the Washington region have weathered the downturn with less long-term damage to their bottom lines.

Manassas Park, or “The Park,” as locals call it, is in a tougher spot than most. The plunge in its property tax revenue has been compounded by its debt, at $131 million.

Paying down that debt is eating up a growing share of the city’s budget. In the past year, $6.5 million, or almost 19 percent of city spending, went toward debt service, city officials said. By 2016, those payments are scheduled to reach $10 million — a prospect that alarms some local fiscal watchdogs.

Without deep spending cuts or new sources of revenue, “I don’t see a path out,” said Greg Letiecq, 58, a conservative who blogs about Prince William County, Manassas and Manassas Park and often rails against tax increases, government spending and illegal immigration. “There’s arithmetic that doesn’t seem to work.”

The boom years

On a map, Manassas Park, about 30 miles southwest of Washington, looks like a small key tucked inside Prince William. First incorporated as a town in 1957 and later as a city in 1975, Manassas Park is big-city exurb-meets-Mayberry: It is large enough to support its own police force and school system yet small enough to have a mayor and a School Board chairman who were Cub Scouts together.

Along with the city of Manassas and surrounding Prince William County, Manassas Park had some of the region’s sharpest swings in home prices and highest foreclosure rates.

Between 2005 and 2007, the city’s tax base increased by 60 percent. Manassas Park officials seized the opportunity to make improvements to its makeshift collection of public buildings. For years, the fire and police departments shared a metal building. City Hall was a converted house. The community center was little more than a gym and some classrooms that hardly anyone used. And the school system was running out of space because of an influx of students. Since 2000, the city’s population has increased by 50 percent, census data show.

Thousands of other cities across the country went on similar building binges, spurred by flush coffers and low interest rates, said Christopher Hoene, director of the Center for Research and Innovation at the National League of Cities.

In Manassas Park, the tab added up quickly: $4 million for the fire station and $8.2 million for the police station. Over a decade, the city spent nearly $95 million on school construction, including a 2006 expansion of the high school, which had been built seven years earlier, and a new $33.5 million elementary school.

The building spree “looked like the safe thing to do when this place was booming,” Manassas Park City Manager Jim Zumwalt said.

The housing bust had begun by the time construction on the 80,000- square-foot community center got underway in 2008. Median home sale prices peaked in July 2006, according to RealEstate Business Intelligence, a real estate data firm. By 2008, home prices had fallen 60 percent, and 80 percent of home sales were foreclosures, city records show.

Ann LeClair, 48, watched the housing market unravel at her doorstep inside Manassas Park Station, a townhouse and condominium development that opened in 2007.

“To go by and see all of those foreclosure signs and paper all over the doors and windows — it was scary,” said LeClair, a federal worker who said she is on the brink of foreclosure herself. Her condo, for which she paid $299,000, has lost more than $100,000 in value.

Manassas Park officials found themselves staring into a fiscal abyss. Because of the lag in data used for assessments, the city collected a record $23.3 million in property tax revenue in 2007. City leaders knew it was downhill from there. By 2009, property tax revenue was down 38 percent.

To balance the books, city officials took a series of difficult steps. They raised property taxes 45 percent and laid off 22 city employees out of a full-time workforce of about 150. They froze city wages for three years, increased employee health-care costs and made myriad smaller departmental cuts. The school system also froze salaries for several years. It eliminated printers to save on ink and paper, and it stopped washing school windows.

Manassas Park officials also drew down reserve funds. At one point, one fund sank into the red by $1.5 million. That negative balance helped trigger a bond-rating downgrade from Standard & Poor’s last year, followed by Moody’s in January.

The downgrade means it will cost the city more to finance big projects. It has even affected smaller deals. In June, CalFirst Bank unexpectedly balked at financing the lease-purchase of some school buses, in part because of the lower debt rating. School officials have since negotiated a new deal with CalFirst.

Brian Leeper, a City Council member, said that in hindsight, Manassas Park took too many risks. “It was shortsighted to do all these projects,” he said.

Leeper and other city leaders are working to buttress the ailing property tax base with more commercial development.

They once placed their hopes on a new retail, office and residential development finished in 2009 called City Center, across the street from City Hall and within walking distance of the city’s Virginia Railway Express train station. Most of the apartments are occupied, but almost all of the storefronts in the 400,000-square-foot complex are empty.

Looking at ‘hard steps’

If there is an upside to the fiscal crisis in Manassas Park, it is a sense among many residents that the money was well spent.

“I don’t think anybody is really happy about paying more property taxes,” said Mark Mullins, 52, a father of two who has lived in Manassas Park for 17 years. “But a lot of the upgrades were needed. You’ve got to pay for it somehow.”

The community center, a project city officials say might not have been built had the housing crash hit six to eight months earlier, has turned out to be the most popular new amenity. It offers two full-size basketball courts, a workout room, an indoor pool and a spacious outdoor dog park.

“The investments needed to be made,” Mayor Frank Jones said. “The good thing is the city has infrastructure now, and the citizens will be served well for decades.”

The question is whether housing prices will recover fast enough for the city to absorb its increasing debt costs.

Last year, Zumwalt, the city manager, drew up a long list of potential “hard steps” to help close a $1.2 million budget gap. They included temporary pay reductions for city workers, furloughs and canceling the Fourth of July fireworks display.

In the end, city leaders increased water rates but didn’t have to take any of the hard steps. Manassas Park ended the last fiscal year $2.1 million in the black.

Feeling optimistic, city officials recently approved the first raise for Manassas Park employees and teachers in several years. Some City Council members have even talked about lowering the property-tax rate in the near future. But the number crunchers say not to count on it.

“I doubt it will be possible,” Zumwalt said. “Unless we have some extraordinary developments.”