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A fiscal emergency in the desert

Desert Hot Springs, no stranger to bankruptcy, is pulling out all the stops to avoid another financial disaster.

“It’s almost like the elephant in the room here and it’s obvious we’re in a fiscal crisis right now, but they’re saying that they want more time,” said Mayor-elect Adam Sanchez, who serves on the City Council.
The resort city of 26,000 at the western edge of the Coachella Valley is looking for ways to save money – and fast.

“We know we’ve had a budget deficit for a number of years,” interim City Manager Bob Adams said at a special meeting of the city council. “A structural deficit, it’s anywhere from $4 million to $7 million in any given year, depending on what you’re looking at, so it’s a minimum of $4 million.”

Overall, the city has some $18 million in debt – about $8 million in certificates of participation and $10 million in bonds to cover legal costs from the city’s 2001 bankruptcy, according to a Bloomberg analysis. In 2004, Desert Hot Springs emerged from its first bankruptcy, which was prompted by a legal fight with a local developer.

On Tuesday, the city council unanimously approved a declaration of a fiscal emergency. An emergency declaration is a preliminary step in filing for bankruptcy protection, although there was no indication from council members that bankruptcy action was coming.

The city could run out of cash by March 31, according to a Nov. 12 report by City Finance Director Amy Aguer.

“Staff came up with every idea they could think of, including ideas that directly harm the livelihood of themselves and their families. Staff is not advocating for, or against, any of these ideas,” the report noted. The document will be considered at Tuesday’s meeting, and “the city will need to take steps to declare a Fiscal Emergency very soon.”

Overall, the city has some $18 million in debt – about $8 million in certificates of participation and $10 million in bonds to cover legal costs from the city’s 2001 bankruptcy, according to a Bloomberg analysis. In 2004, Desert Hot Springs emerged from its first bankruptcy, which was prompted by a legal fight with a local developer.

Now, it’s edging toward another bankruptcy proceeding, but before it takes that step it wants to cut costs. Public workers’ salaries are high on the list.

“I’m for keeping the police department, I think they do a good job. I think, though, we have to look at some efficiencies there,” said Joe McKee, a city councilmember-elect. The city does not want to be “in a position where we have a police department with low morale because we are messing with them too much.”

Despite the apparent severity of the numbers in the Nov. 12 report, doubts linger that a fiscal emergency looms, according to Sanchez.

Few are pleased at that prospect. “If you want to return to that, well that’s another story,” said Pastor Paul Miller, a local cleric. “Then just rename Desert Hot Springs to Dodge City.”

If it does declare bankruptcy, Desert Hot Springs will join the cities of Stockton, with a population of 290,000, and San Bernardino, with 210,000, seeking protection from creditors. A third community, Mammoth Lakes, went into bankruptcy because of a $43 million legal battle with a developer and that proceeding was dismissed last year last year. Vallejo went into bankruptcy in 2008 and emerged in 2011.

Despite the apparent severity of the numbers in the Nov. 12 report, doubts linger that a fiscal emergency looms, according to Sanchez.

“It seems like there’s not a consensus on the council right now about whether we’re in the fiscal emergency,” he said.

Bankruptcy isn’t the only thing on the city’s radar: Politicking also has been intense.

Desert Hot Springs also faces a possible recount of the recent mayoral election, in which Sanchez defeated incumbent Yvonne Parks by 12 votes.

Parks, who is on the council’s fiscal committee, said she wasn’t prepared for the financial crisis. “This blindsided me horribly, I had no anticipation of this. None whatsoever,” Parks told a local reporter.

“You can’t even think about dealing with bankruptcy until you figure that you’re in a fiscal emergency first,” he said.

“You can’t even think about dealing with bankruptcy until you figure that you’re in a fiscal emergency first,” he said

But Sanchez says the crisis has been coming for quite some time.

“It’s hard for people to have to admit that they make mistakes, and they were wrong on the budget, and the city staff said they’ve been overspending for five years now, and they’re still in denial,” Sanchez told Capitol Weekly. “I’ve been on the council for two years and am the current mayor as of December third, and I’ve been telling them we’ve been overspending since the two years I’ve been on the council. I voted no on the budget cause I could see the numbers, that we were deficit spending already, and now … we have to stop this spending because we don’t have enough revenue.”

Desert Hot Springs, better known by for it’s reputation as California’s Spa City – perched on a mineral water aquifer, it has 16 spas — has not yet asked for assistance, but is unlikely to receive it if they do.

“The state does not come in and lend money,” Finance Department spokesman H.D. Palmer told MyDesert.com

Sanchez said the city must define the magnitude of the problem before getting into a bankruptcy declaration.

“You can’t even think about dealing with bankruptcy until you figure that you’re in a fiscal emergency first,” he said. “That’s the first step we have to take, and if they don’t take it this Tuesday, I think the new leadership … will do what’s necessary to start working off the city’s debt, to make those adjustments to the budget so we have enough … to take us from March all the way to the end of the budget year.”

The list of suggestions consists of 102 options that include closing public services, reducing the workforce, furloughs, cutting law enforcement, and more. Council members, not surprisingly, are divided on which options, if any, should be pursued.

“What we’ve got to do right now is deal with the fiscal emergency. The bankruptcy doesn’t come up until you realize that there just isn’t any possibility at all for the city to pay its debts, so the bankruptcy is still a few steps down the road.”

The list of suggestions consists of 102 options that include closing public services, reducing the workforce, furloughs, cutting law enforcement, and more. Council members, not surprisingly, are divided on which options, if any, should be pursued.

“I don’t know who came up with this list but not everything on it is realistic,” said Councilman Russell Betts told a local reporter, possibly referring to suggestions such as the closing of the Senior Center, furlough days, or a downsize in the already stressed police force.

But Sanchez saw a political dimension in the budget crisis.

“It’s almost like they don’t want to admit that they were not permitted oversight on the budget. It seems like they don’t even want to vote on it this Tuesday, they want to wait until I come into office,” said Sanchez of the upcoming meeting.


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