SANTA CRUZ — A financial education nonprofit ranks the Santa Cruz-Watsonville metropolitan area 10th best in the nation in personal "financial fitness" among cities of its size, but at least one local financial adviser called the study "absurd."

The report, released Tuesday by the InCharge Institute of Orlando, Fla., at the Conference of Mayors' meeting in Washington, D.C., ranks 314 metropolitan areas, using five factors to assess "financial fitness" based on 2003 data:

• Real personal disposable income.
• Employment opportunities.
• Credit worthiness.
• Level of savings.
• Refinancing activity, which the report calls "near liquid financial reserves."

It appears the value of the area's real estate and low mortgage rates, which fueled a refinancing boom in recent years, pushed the area to the top of the list.

But is that a true measure of financial fitness when half the population spends half its income — the median family makes $75,300 — on housing costs?

According to the 2004 Santa Cruz County Community Assessment Report, 27.5 percent of those surveyed said they thought they were financially better off in 2003 than in 2002. That percentage has decreased steadily since its peak of 60.5 in 1999.

"Saying refinancing activity is a near liquid financial reserve and putting it on the balance sheet — if I did that, I'd be put in jail," said Capitola investment adviser Caleb Lawrence. "Saying people can burn the equity in their homes and consider that a reflection of financial empowerment is absurd in the extreme."

Lawrence also objected to refinancing figures estimated from 2002 data, saying they did not reflect actual 2003 numbers.

The analysis concluded that the financial wellness of the average consumer in a metropolitan area was most strongly related to the combined effect of employment opportunity and credit worthiness.

Income and bank deposits reflected a second factor that the report said "seems connected with financial empowerment." Refinancing activity, the report said, "pointed to the importance of a third factor associated with the desire and ability to tap into near liquid financial reserves."

Among about 100 metro areas with populations of 200,000-500,000, Santa Cruz-Watsonville ranked:

• 15th in "credit worthiness and employment opportunity."
• 76th in "financial empowerment."
• 2nd in "availability of near liquid reserves."
• 10th overall.

But Lawrence points to recent employment figures in Santa Clara County, where many Santa Cruz County residents commute for higher-paying jobs, as an indicator that the data is misleading.

In December 2000, the labor force in Santa Clara County numbered slightly over 1 million, and the unemployment rate was 1.3 percent. In December 2003, the labor force numbered 876,600, and the unemployment rate was 6.6 percent.

"Employment being way down and refinancing way up signals that people are taking money out of their homes and living on it," said Lawrence.

Much of the recent refinancing activity was simply done because housing values went up so much, said Harry Domash, an Aptos online investment teaches who publishes an investing newsletter. The median price of a single-family home in Santa Cruz County rose to $650,000 in December and, according to the California Association of Realtors, only 18 percent of households in the county are able to afford a median-priced home.

Analysis of what people were doing with any refinance cash was not part of the study, said Trish Wexler, a Virginia-based spokeswoman for InCharge Institute.

"From a financially fit standpoint, we're looking at what kind of money do these people have at their fingertips — if they hit a credit problem, if they were hit with a medical emergency that required them to go into debt, do they have a fallback position," said Wexler.

The national level of refinancing activity rose from about $50 billion in 2000 to over $200 billion in 2003, said Brad Stroh, co-chief executive officer of San Mateo-based Freedom Debt Relief, a consumer debt resolution service.

"Nationally, consumer debt continues to rise even in the face of this record refinancing. If you were paying off your debt with the refinance, that number would be going down, which signals that people are using it for consumption rather than savings or equity appreciation," he said.

Several Northern California cities were among the top 10 lists:

• Santa Rosa ranked No. 8 in the 200,000-500,000 population areas.
• San Jose ranked No. 7 among the over-500,000 population areas.
• San Francisco No. 2 among the over-500,000 population areas.

The top-ranked areas in the report were:

• Wilmington-Newark, Del.-Md., in the over-500,000 population category.
• Trenton, N.J., in the 200,000-500,000 category.
• Bloomington-Normal, Ill., in the less than 200,000 category.

The report is on the Web at education.incharge.org.

Contact Gwen Mickelson at gmickelson@santacruzsentinel.com .

Click here to go to Freedom Debt Relief's website