Atwater: Another California city in dire straits
Atwater, a Central Valley town of 28,626, may declare a “fiscal emergency” Wednesday, Oct. 3. “We are hoping to avoid” bankruptcy, Mayor Carol Joan Faul told Dow Jones Newswires. The Wall Street Journal reported that that the city plans to make $2 million in payments on $95 million in outstanding bonds “related to its sewer, as well as its now-defunct redevelopment agency.”
This dilemma contrasts with Stockton and San Bernardino, which earlier this year declared bankruptcy because of a difficulty making bond payments. The third municipality to declare bankruptcy this year, Mammoth Lakes, is a small city that was hit with a large legal judgment.
Under to a 2011 law signed by Gov. Jerry Brown, a city facing insolvency has two choices. It can submit to a neutral evaluation process to see if the city should declare bankruptcy. Or it can do what Atwater may do and declare a “fiscal emergency” that could lead quickly to a Chapter 9 bankruptcy filing.
Every distressed municipal budget has unique features. Orange County Supervisor John Moorlach explained to us some of the problems Atwater is having. In 1994, he warned of the Orange County government’s impending bankruptcy, then was appointed treasurer in the aftermath to fix things. He looked at Atwater’s Comprehensive Annual Financial Report for the fiscal year ending June 30, 2011. The subsequent year’s report won’t be available until December.
Mr. Moorlach found that Atwater’s level of “per-capita unrestricted net assets” actually is negative. The government-related assets are a minus $140 per resident. But business-related activity is minus $333. Combined, that comes to minus $473 per resident. Put another way, the government has put each resident – including children – in debt of $473. Of course, that’s in addition to all the debt piled up by the federal and state governments.
Mr. Moorlach calculated that the minus $473 number is “just shy of Stockton,” at minus $478, which was dire enough, of course, for Stockton to seek bankruptcy protection. He added, however, that Atwater’s situation might not be as acute as Stockton’s. Even so, he said, “Atwater is a case either for internal restructuring, or it is headed for Chapter 9.”
In Atwater’s case, a problem seems to be the “business activities” part of the ledger. This is where the city expects to make money on an activity. In Atwater, Mr. Moorlach said, “it’s either poor timing or mismanagement” of the business activities. Some city activities can be highly profitable, such as the Anaheim Public Utilities, which produces electricity and water, essentials everyone needs. However, public sector operations of what are more typically private-sector activities often don’t pan out.
In the private sector, if a venture fails, owners or stockholders lose their money, and employees lose their jobs, which is painful. But in the public sector, a failed venture can be kept running through tax increases that residents can’t avoid except by moving.
The next municipalities to watch for budget problems, Mr. Moorlach cautioned, are Victorville in San Bernardino County (population 115,900) and the Tulare County town of Lindsay (population about 12,000). Atwater’s problems, following those of the three bankrupt cities, are warnings to all Orange County cities and the county government to keep cutting waste, privatizing as much as possible and getting their financial houses in order.