Third California City to Face Bankruptcy

Wednesday, 13 Nov 2013 05:33 PM

By Cynthia Fagen

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A California resort town warned on Tuesday its coffers will run dry by March due to high salaries and pension costs and it may have to file for bankruptcy.

Desert Hot Springs, a spa destination with a population of 26,000, and an estimated median household income of $31,356, follows two other California cities; San Bernardino and Stockton in filing for bankruptcy protection, NBC news reports.

Other cities hammered with pension liabilities include Detroit, which is currently seeking a judge's ruling to slash benefits.

The financial woes of the southern California spa city, which is built over natural hot mineral water aquifers, came to light during a recent review of city records in which a $3 million shortfall in its budget of $13.5 million was discovered.

Amy Auger, interim director of finance, said nearly 70 percent of the city's budget was consumed by the 39 member Desert Hot Springs Police Dept.'s pension payments to the California Public Employees' Retirement System, or CalPERS.

According to public documents, the highest-paid police sergeant makes $130,566 yearly with incentives and the highest-paid patrol officer makes $94,938, The Californian reports.

"It's obvious we can't continue with salaries and pensions that are in the stratosphere, no matter how much love there is for our police department," said Russell Betts, a city council member.

The council is considering downsizing the police force, cutting city employee benefits by 10 percent, closing down the senior center, and eliminating $250,000 in funding for the Boy & Girls Club.

Desert Hot Springs, which is near Palm Springs and a two-hour drive from Los Angeles, filed for bankruptcy in 2001 after losing a multimillion dollar lawsuit and is still servicing $9.7 million of bond debt issued to fund its exit from Chapter 9 bankruptcy.

"What is happening in Desert Hot Springs, and San Bernardino, are not going to be highly unusual events," said Karol Denniston, a bankruptcy attorney in San Francisco. "CalPERS keeps increasing costs and many of these cities have cut costs down to where there is nothing else left to cut."

CalPERS is America's biggest public pension fund, with assets of $277 billion. It has argued strenuously in court that pension payments cannot be touched, even in a bankruptcy.

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