Desert Hot Springs, California, May Weigh Bankruptcy

Desert Hot Springs, California, a resort town near Palm Springs, may become the first city since Detroit to seek bankruptcy protection from creditors after a sharp drop in revenue, according to a staff report.

The city of 26,000 will run out of cash by March 31, according to a memo to the City Council from Amy Aguer, the interim director of finance and administration. She urged the council to declare a fiscal emergency at its Nov. 9 meeting, a prerequisite under state law for a Chapter 9 filing.

If approved, Desert Hot Springs, about 110 miles (177 kilometers) east of Los Angeles, would join two other California cities in bankruptcy court: San Bernardino, with a population of 210,000, and Stockton, with 292,000 residents, the biggest U.S. city to enter Chapter 9 proceedings until Detroit sought protection in July.

“I’m just blindsided,” Mayor Yvonne Parks said yesterday when asked about the fiscal crisis. “There isn’t anything that could explain this. That’s what blows my mind.”

Revenue for the year that began July 1 is projected to be $13.9 million, or $2.7 million less than budgeted, Aguer said in the memo. She didn’t explain what caused the 16 percent difference and couldn’t be reached yesterday as City Hall was closed.

San Bernardino, whose council voted for bankruptcy in August 2012, and Stockton, which filed in June 2012, both cited decreased property-tax revenues from the housing-market collapse, as well as rising labor and pension costs.

If Desert Hot Springs doesn’t seek bankruptcy, “the city may need to consider disincorporation,” Aguer said in the report. The city “would become an unincorporated community within the County of Riverside. The county is required to provide minimal services such as police, fire and sanitation.”

Desert Hot Springs filed for bankruptcy in 2001, saying it couldn’t afford a legal judgment of almost $6 million awarded to a mobile-home-park developer that had been denied permits for a project in the city. The Chapter 9 period ended in 2004.

To contact the reporter on this story: James Nash in Los Angeles at jnash24@bloomberg.net

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net

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