Desert Hot Springs Declares Fiscal Emergency

Desert Hot Springs is working to avoid declaring bankruptcy for the second time in 12 years.

The City Council approved a resolution declaring a fiscal emergency, after being told that the city is on track to spend $4.8 million more than its expected revenue for the current fiscal year.

Interim City Manager Bob Adams warned in a report presented to the council on Tuesday Nov. 19 that if "significant action is not taken, the projected depletion of the city's reserves to meet the city's financial obligations would cause the city to file bankruptcy."

The Desert Sun reported that council members didn't discuss municipal bankruptcy, and the city isn't at a point where it must consider it.

Finance Director Amy Aguer said the city's expected expenditures for the fiscal year that ends June 30 are $18.7 million, while revenue is projected at $13.9 million.

"To make us whole, we're going to have to cut 25 to 27 percent . . . which is why time is of the essence," she told the council.

Adams said that if the city continues with its current spending, it will "be out of cash by April or May." He said the city has $3 million in reserves.

Desert Hot Springs previously filed for bankruptcy in 2001, in the wake of a legal judgment.

San Bernardino is the latest California municipality to file for bankruptcy, which that city did in August. Stockton and Mammoth Lakes filed for bankruptcy last year.

Adams said a fiscal emergency would allow the city to restructure contracts with vendors for various services. The city has $6.5 million in contracts, he said.

According to his report, the city is working with a financial analyst and specialized firms "to assist them in pursuing financial solutions which will make the General Fund solvent in the upcoming years."

Aguer said ideas from an earlier budget workshop include working with labor groups on salary expenditures, working with contractors to reduce contract costs by 10 percent or more, and making the parcel tax more equitable throughout the city.

Adams said the city's expenditures have exceeded revenue for several years, partly because of limited tax revenue. The city has cut more than 60 percent of its non-sworn workforce in the last several years and outsourced services, according to his report.

Aguer said the city hasn't started deficit spending yet, "but if we keep on the same path, we will."

A fiscal emergency is legally defined as a financial crisis, particularly of a government or public entity.

The Desert Hot Springs City Council's next meeting is Dec. 3.

Reported by City News Service