California Desert Resort Town Mulls Potential Bankruptcy Filing
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California Desert Resort Town Mulls Potential Bankruptcy Filing

December 2, 2013

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A desert resort town in California is reportedly mulling a bankruptcy filing, but it is still considering other options to rescue its sinking finances, according to a recent report from Bloomberg News.

According to sources, the City Council of Desert Hot Springs, California, has been urged by multiple city employees to file for bankruptcy, but the city’s leaders refused to commit to a bankruptcy filing.

The city, which is home to 26,000 residents, is famous for its mineral spas, where vacationers from nearby Palm Springs descend at all times of the year.

But the resort town will run out of cash by March 31, according to the city’s interim finance director, Amy Aguer, who told the City Council that it should promptly declare a fiscal emergency, which is a necessary preliminary step before filing bankruptcy.

The recently elected mayor of the town, however, disagreed. "It’s too drastic to consider," said Adam Sanchez, a Democrat. "There’s room in this city budget to make the cuts that are necessary without going bankrupt."

Interestingly, the city, which has roughly $18 million in debt, filed for bankruptcy in 2001, after it told the bankruptcy court it was unable to pay a $6 million judgment owed to a property developer who had wrongfully been denied building permits for a mobile home park. The city left this bankruptcy in 2004.

One bankruptcy expert, Matt Fabian, the managing director of Municipal Market Advisors, told sources that multiple filings for one city are relatively common. "Cities that file for bankruptcy seem to file for bankruptcy again, more than other cities," said Fabian.

Desert Springs would be the first American city go up in bankruptcy court since Detroit famously did so this July. Of course, two other California cities, San Bernardino and Stockton, are still working through their pending bankruptcy filings.

According to reports, the bankruptcy filings of these cities were mostly due to rising pension and labor costs, as well as plummeting revenues from property taxes after the recent collapse of the housing market.

The problems of Desert Springs, however, stem from overly "optimistic" budget projections by previous city leaders, according to Aguer.


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