California Screaming As 4th Muni Bankruptcy Looms in Atwater
Whether Atwater, California will join the prodigious ranks of Stockton, San Bernardino, and Mammoth Lakes to become the 4th Muni bankruptcy is up for vote on October 3rd (before a $2mm bond payment in November). As Bloomberg notes, the 28,000-strong Merced county town is suffering under the same weight of public employee costs, lost revenue, and a stagnant economy leaving it with a $3.3 million budget deficit. While some put their hope in the FB IPO, perhaps Bernanke should have mandated investment in AAPL for all these municipal comptrollers? The median income is 19% below the national average as the foreclosure crisis - which saw Atwater's median home price drop by more than half - has depleted property-tax revenues dramatically. "We just started negotiating with our unions and they are going to have to take a major cut," Mayor Joan Faul said. "We hope that once we declare a fiscal emergency, that they will realize that we are definitely in an emergency. If they want to save all the jobs, everyone is going to have to take a cut,"
Via Bloomberg Briefs:
Atwater, California, is going broke under the weight of public employee costs, lost revenue and a stagnant economy, pushing it toward becoming the state’s fourth city to seek bankruptcy protection. The city of 28,000, situated among Merced County’s dairies and almond groves about 100 miles southeast of San Francisco, has a $3.3 million deficit that may leave it insolvent before year’s end, according to budget documents.
Atwater’s City Council is set to vote Oct. 3 on a fiscal emergency declaration that would permit it to follow other California cities – Stockton, San Bernardino and Mammoth Lakes – into bankruptcy court. Across the state, the recession and the foreclosure crisis have depleted property-tax revenue at the same time municipalities are burdened with rising costs including pensions.
The median household income in 2010 was $42,226, 19 percent below the national average of $51,914. Almost a fourth of the population is considered below the poverty line, compared with 13.7 percent statewide, according to U.S. Census figures.
The housing crash cut Atwater’s median home price by more than half, to $140,000 in the fiscal year that ended in June from $336,000 in the same period in 2007. Unemployment surged to 21 percent. That helped send the city’s tax revenue plummeting more than one-fifth since 2007.
Under labor contracts, the city pays all of an employee’s 8 percent mandatory contribution for pension costs and 7 percentage points of the 9 percent for police and firefighters. Health-care premiums increased by 15 percent in 2011 and are forecast to jump 10 percent next year.
To help balance the books, Atwater has mostly depleted its cash reserves, fired 30 percent of its 120 workers since 2008 and may need to trim another third, Faul said. The city is in talks with unions for concessions from police officers and rank-and-file city workers, Faul said.
“We just started negotiating with our unions and they are going to have to take a major cut,’’ Faul said. “We hope that once we declare a fiscal emergency, that they will realize that we are definitely in an emergency. If they want to save all the jobs, everyone is going to have to take a cut,’’ she continued.
To make matters worse, the city is facing a $2 million payment on bonds in November, according to the budget documents.
Standard and Poor’s lowered its underlying rating on the Atwater Public Financing Authority’s wastewater revenue bonds to BBB- from A on Sept. 24, citing the city’s potential move toward bankruptcy.
Under a law signed by Brown last year, cities seeking bankruptcy protection must first declare a fiscal emergency or hold talks with creditors through a mediator. Municipalities can file for court protection if mediation doesn’t bring a resolution in 60 days or if the city runs out of money. The law was sought by unions after Vallejo went bankrupt in 2008 and asked a court to help it void labor contracts.