The California hit parade keeps on rolling as yet Another California city scrambles to avoid bankruptcy.
Atwater, a city of roughly 28,000 in California’s Central Valley, may declare a fiscal emergency as soon as next week, but it is trying to avoid becoming the fourth California city to file for municipal bankruptcy this year, its mayor said.
Under California law, a local government must either declare a “fiscal emergency” or go through a 60-to-90 day confidential negotiation process with its creditors before it files for municipal bankruptcy. Since late June, three Golden State cities-Stockton, San Bernardino and Mammoth Lakes-have filed for bankruptcy protection.
“We are planning to stay current on our … bonds,” said Mayor Carol Joan Faul in a telephone interview with Dow Jones Newswires. “We are hoping to avoid” bankruptcy, she said, “but as far as I’m concerned, we may have to declare a fiscal emergency” on Oct. 3.
According to its fiscal 2011 financial statement, Atwater had roughly $95 million in outstanding debt, a mixture of bonds related to its sewer as well its now-defunct redevelopment agency. Ms. Faul said Atwater intends to make an upcoming bond payment of $2 million on its sewer bonds.
Atwater is Burnt Toast
Once things reach this stage, one does not even need to look at the details because it’s a done deal.
Yet, I did look further and as expected, public unions appear to be smack in the middle of things as noted in a Reuters article on Potential Atwater Bankruptcy.
Atwater’s economy is “pretty bleak” and starving the city of so much revenue its leaders must consider a drastic overhaul of the services, said Jim Price, vice president of operations at Gemini Flight Support at Atwater’s Castle Airport.
“Police and fire, you keep them – and everything else is going to have to be privatized,” Price said. “I just don’t know how they can do it any other way.”
RAISING REVENUE, CUTTING COSTS
Atwater’s officials are just beginning to consider their options, Faul said, noting the city must consider raising 20-year-old rates for water services and 10-year-old rates for garbage services while clamping down on costs.
Union representative Nancy Vinson said she expects the city will seek concessions from its roughly 30 non-safety employees, who gave up 10 percent of pay last year through furloughs.
“They could ask for a wage reduction, they could ask for a different contribution to the retirement system, they could ask for a higher health benefit contribution,” Vinson said. “We have not been unwilling to talk to them.”
Atwater must also seek concessions from its roughly 50 safety and management-level employees, Vinson said, adding she is concerned city officials are moving too fast on a plan for declaring a fiscal emergency.
Atwater’s Choice: Bankruptcy Today or Bankruptcy Later
Atwater can enter bankruptcy today, saving taxpayers a lot of money, or it can waste taxpayer money for years, scrambling to make bond payments and then default.
Either way, Atwater is burnt toast. Attempts to make bond payments is a fool’s mission.
About the author: Mike “Mish” Shedlock is a registered investment advisor representative for Sitka Pacific Capital Management. His top-rated global economics blog Mish’s Global Economic Trend Analysis offers insightful commentary every day of the week. He is also a contributing “professor” on Minyanville, a community site focused on economic and financial education. Every Thursday he does a podcast on HoweStreet and on an ad hoc basis he contributes to many other websites, including UnionWatch.