The tale of Hercules involves dynamite, some pretty explosive city politics - and failed investments.

Councilman Bill Wilkins: "This building right here is on what was part of the dynamite factory." 

Councilman Bill Wilkins is showing us around Hercules. It was a company town for California Powder Works until the 1960's.  The city's named for the signature product: Hercules dynamite. When the plant closed there was a boom of a different kind - housing.

We drive through a cheerful neighborhood designed in the style of new urbanism: Craftsman-style homes are clustered close to parks and shops - but like so many California communities, home values in Hercules have plummeted. Wilkins says million dollar homes are now worth half as much.

Councilman Bill Wilkins:  "We've seen a lot of our friends move out.  I mean, right on my street, of the original neighbors that we had, half of them are gone.  Probably 30 percent lost their house in foreclosure."

Meantime, the city was pumping borrowed money into development projects that didn't pan out.  The most spectacular failure is a group of unfinished apartment buildings.  The city spent more than 35 million dollars trying to build them, ran out of money, and recently sold the complex for less than half-a-million.  Here's Mayor Dan Romero:

Mayor Dan Romero:  "We lived high on the hog and the reality is that in all the years in the city of Hercules, all the money that was spent in redevelopment, they never built a building.  There are no revenues coming in."

That's part of the reason the city was on the brink of bankruptcy. Romero took office last year after a recall election that led to a complete turnover of the city council.  To close a multi-million dollar deficit they slashed the city budget and staff nearly in half.  The police force was cut by a third. The town of nearly 25-thousand now has only 20 officers. Mayor Romero says all extras had to go:

Mayor Dan Romero:  "We cancelled our cultural festival that we had for over 25 years.  We canceled the Fourth of July fireworks, the farmer's market.  They all were costing the city money."

Councilman Bill Wilkins says the painful measures were necessary after so much overspending.  But he believes Hercules is now turning the corner.

Councilman Bill Wilkins: "What we're going through now are the trials and tribulations of Hercules and it borders on a Greek tragedy, it really does.  But the play is almost over."

The Powder Keg is a pub-style restaurant in one of the city's newer neighborhoods.  Nicolette Endriga owns the place.  She says despite the city's mess, business isn't bad:

Nicolette Endriga:  "They still come out.  They still have to eat, I guess, and have a drink once in awhile."

Alex Fernandez is eating lunch with his daughter Olivia.  He says the cuts haven't affected him much either:

Alex Fernandez: "I've seen less patrolmen on the streets.  You can see a little bit of infrastructure take a little bit of hit. It's not being kept up as well - especially at the city park, but overall, the quality of life it's been fine."

But despite the city's fiscal failures, Hercules is still dreaming big.  That old dynamite factory site? It's evolving again. This time into a major new transit center, shops, restaurants - and even more housing.