(photo credit: DG EMPL)
Say it ain’t so. If money matters in the city of Desert Hot Springs, of Riverside County, don’t improve, the city will have to file for bankruptcy. Again.
Your eyes aren’t deceiving you. You read that right, a second bankruptcy.
To avoid it, city leaders recently declared a fiscal emergency.
“Declaring a fiscal emergency is a step the California state law requires from a city or county or public entity to go through before it can qualify to file a chapter 9 bankruptcy case,” said Samuel Bufford, a former U.S. Bankruptcy Judge in Los Angeles.
A report by the City’s interim manager states the city is in a “serious structural imbalance” brought by recession, among other factors.
“One of the things about Desert Hot Springs, like many California cities, was there was a huge dip in single family residences. This is what caused San Bernardino into bankruptcy. And this has a huge impact on city finances. If it dropped by 50 percent, whatever their financial situation, they can’t make it,” Bufford said.
The City expects to generate about $14 million in revenue this coming fiscal year but city’s budgeted expenses come close to $20 million. The report also states the City is expected to deplete its reserves within the next five months, forcing city leaders to file yet another Chapter 9 bankruptcy protection.
In 2001, Desert Hot Springs filed for Chapter 9 after the city lost a costly court battle when a developer sued the city for blocking construction of a housing community for low-income residents.
Filing for yet another bankruptcy sounds shocking, but it’s not all that unusual.
“It was ages when ago this happened [the first time]. The economy is far different today from what it was then. The city is probably far different from what it was then also. So their first bankruptcy is ancient history,” said Bufford.
Is a bankruptcy filing inevitable for this bedroom community, known for its spas and hotels?
“Not necessarily. The state legislature adopted a declaration of fiscal emergency requirement to give a warning to parties and interests that a bankruptcy case is going to come unless they set aside their differences and negotiate a settlement,” he said.
It’s clear the City has some serious issues it has to deal with. For now, we shall all wait and see.
“If they file for bankruptcy this is just another negotiation assignment. They’re going to have to do it afterwards if they don’t do it beforehand. This is what happened in Stockton. They couldn’t reach deals before so now they’re doing it after.”