SAN FRANCISCO, Sept 19 Officials in Atwater,
California, will meet on Wednesday evening to begin discussing
whether to declare a fiscal emergency, which would allow them to
move forward with a Chapter 9 bankruptcy filing for the city if
California law requires financially troubled local
governments to try to enter talks with their creditors to avert
bankruptcy filings. The local governments may, however, declare
fiscal emergencies to circumvent that rule.
The city council in San Bernardino, California, in July
authorized a bankruptcy filing for the city after declaring a
fiscal emergency. The city of 210,000 residents 65 miles (104
km) east of Los Angeles filed for bankruptcy on Aug. 1 following
a report that said it had tapped out its reserves and projected
spending would top revenue by $45 million in the fiscal year
that began on July 1.
If the leaders of Atwater declare a fiscal emergency, the
city of approximately 28,200 residents in Merced County in
California's Central Valley could become the fourth city in the
state to file for Chapter 9 bankruptcy this year.
Atwater is located 62 miles (100 km) southeast of Stockton,
California, a Central Valley city of 300,000 residents that
filed for bankruptcy in June after lengthy confidential talks
with creditors failed to produce concessions to help it close a
$26 million budget gap.
The U.S. municipal market debt market is on high alert for
any signs of financial stress that could tip more local
governments in the most populous U.S. state in the direction of
Chapter 9 bankruptcy, which can be used to breach contracts,
including those with lenders.
California cities face ongoing financial challenges from
rising employee compensation and restrictions on their ability
to raise revenue, which will maintain pressure on their credit
ratings, Fitch Ratings said in a statement on Wednesday.
The cases of Stockton and San Bernardino are concerning,
Fitch added, because "in both cases management suggested
bondholders accept delayed, and perhaps reduced, payments rather
than significant reductions in labor costs, though San
Bernardino does provide for full debt service in its current
A notice of a special meeting for Atwater's city council
said the city's revenue and general fund have been "critically
reduced" by the recent economic downturn.
"Though it was anticipated that the economy would recover by
now, this recovery has not materialized," the notice said. "At
the same time, the City continues to face increasing costs in
its personnel budget, including wage, pension, and other fringe
Atwater faces a general fund deficit of $3.3 million, the
notice said. "Without further action, the City will not be able
to pay its obligations," it added.
According to the notice, city staff have recommended to
Atwater's city council that it take up the matter of a fiscal
emergency again on Oct. 3.
That will give city staff time to work on solutions to avoid
a bankruptcy filing and gather material needed for a fiscal
emergency declaration, according to the notice.
"While bankruptcy is always a last resort, if other
solutions do not allow the City to meet its legal obligations to
balance its FY 12/13 operating budget, while providing adequate
levels of services necessary for the health, safety, and welfare
of the citizens of Atwater, the City may be required to seek
bankruptcy protection," the notice said.