OAKLAND, California (Reuters) - The city council of Atwater, California approved a fiscal emergency declaration on Wednesday night, a move that could put the city of 28,000 on the path to becoming the fourth city in the most populous U.S. state to declare bankruptcy this year.
California requires its local governments to try to enter talks with their creditors to avert bankruptcy filings, but municipalities may declare fiscal emergencies to circumvent the law and file for bankruptcy.
Municipal debt market analysts are keeping a close eye on the finances of local governments in California out of concern that some could use fiscal emergency declarations as a way to speed Chapter 9 filings to attempt to shed financial obligations.
San Bernardino, California's city council in July authorized a bankruptcy filing after declaring a fiscal emergency. The city of 210,000 residents 65 miles east of Los Angeles, filed for bankruptcy on August 1.
By contrast, Stockton, a city of 300,000 located about 62 miles to the northwest of Atwater, became California's first city to file for Chapter 9 bankruptcy protection this year after 90 days of inconclusive mediation with its creditors.
Mammoth Lakes, a resort town of about 8,000 residents in California's Sierra Nevada mountains, followed Stockton into bankruptcy court, saying it could not afford a $43 million legal judgment against it. Mammoth Lakes has since reached a settlement with the property developer in the legal dispute and later this month will seek to have its bankruptcy case dismissed.
Like Stockton, Atwater has fallen on hard times after its housing market imploded and sent property tax revenue plummeting. Furloughs and a hiring freeze were not enough to stem Atwater's losses and the city now faces a budget gap of more than $3 million.
City officials are looking into options for increasing revenue such as raising 20-year-old rates for water services and 10-year-old rates for garbage collection services while clamping down on costs, all while considering whether to pursue a bankruptcy filing.
Union representative Nancy Vinson said 38 of Atwater's non-safety employees have received layoff notices and that 12 are sure to lose their jobs as part of the city's efforts to pare spending.
Vinson told Reuters by telephone that she believes Atwater's financial troubles are so severe that the city will not be able to avoid a bankruptcy filing.
"I believe they're heading straight to bankruptcy," she said.
Mayor Joan Faul could not be reached for comment.
(Reporting By Jim Christie; Editing by Eric Walsh)