Atwater, California May Join Parade to Bankruptcy Court
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California Town of Atwater May Join Parade to Bankruptcy Court

October 17, 2012

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Atwater, California, a city in the Central Valley with about 28,000 residents, is trying to avoid filing for municipal bankruptcy, but it may soon have no choice, according to a report from The Wall Street Journal.

This year, three California cities, Stockton, Mammoth Lakes, and San Bernardino, have already filed for Chapter 9 bankruptcy, which allows municipalities to seek debt relief in a federal court, and Atwater looks like it might become the fourth.

Sources indicate that Atwater is considering the possibility of declaring a fiscal emergency, which, under California law, is a necessary precursor to filing for bankruptcy.

In the Golden State, municipalities must announce a fiscal emergency or engage in a 60-day negotiation process with their creditors before filing a petition in the bankruptcy court.

Atwater may be on the verge of starting this process. According to Mayor Carol Jean Faul, the city is "hoping to avoid" filing for bankruptcy, but she admitted that the city "may have to declare a fiscal emergency".

The mayor seems particularly anxious because of the city’s overwhelming debt load. According to Atwater’s own financial statement released in 2011, the city has nearly $100 million in outstanding debt.

Most of the debt is related to bonds sold when the city constructed a new sewer system. The sewer system bonds, however, have started to cripple the city’s finances.

Mayor Faul, however, says the city intends to pay all of its bonds, which provides a stark contrast to San Bernardino and Stockton, both of which stopped making payments on many of their bond-related debts.

But the mayor’s strong words may not reflect the reality of Atwater’s dismal economic situation. Sources say that the town’s unemployment level is above 16 percent, and almost 25 percent of Atwater’s residents live below the federal poverty line.

The high levels of poverty and unemployment have shrunk the city’s tax base, which was also injured when the housing market crashed in 2008.

At one point, according to Mayor Faul, the city was "one of the foreclosure capitals of the world," which is a fair statement, given the fact that Atwater’s home foreclosure rate was recently calculated to be three times the national rate.


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