* Atwater faces $3.3 million budget gap
* City officials mull compensation concessions, rate hikes
* S&P lowers Atwater's wastewater revenue bonds four notches
By Jim Christie
SAN FRANCISCO, Sept 24 Furloughs and a hiring
freeze will not plug Atwater, California's budget gap and it
must move more aggressively to avoid becoming the fourth city in
the state to file for bankruptcy this year, according to its
Other options for tackling the $3.3 million budget gap faced
by the Central Valley city of about 28,000 residents include
selling property and asking employees for pension-plan
concessions, Mayor Joan Faul said on Monday.
"You can say a little prayer and hope everyone works
together on this," Faul told Reuters, adding that she was
hopeful the city could approve further austerity measures.
Like other cities in inland parts of the most populous U.S.
state, Atwater has fallen on hard times after its housing market
imploded and sent property tax revenue into a spiral.
In June, the housing crash helped push Stockton, located
about 62 miles (100 km) to the northwest of Atwater, to become
California's first city to file for bankruptcy in 2012. The
Central Valley city of 300,000 sought Chapter 9 protection from
its creditors after 90 days of inconclusive med i ation.
According to a report by city staff presented to Atwater's
city council, the local median home price has dropped about 40
percent to $139,000 since 2007 and the city's property tax
revenue has dropped by 27 percent since then.
The local jobs market has also been hammered in recent
years: Atwater's current unemployment rate is approximately 21
percent, the report said.
Atwater's economy is "pretty bleak" and starving the city of
so much revenue its leaders must consider a drastic overhaul of
the services, said Jim Price, vice president of operations at
Gemini Flight Support at Atwater's Castle Airport.
"Police and fire, you keep them - and everything else is
going to have to be privatized," Price said. "I just don't know
how they can do it any other way."
RAISING REVENUE, CUTTING COSTS
Atwater's officials are just beginning to consider their
options, Faul said, noting the city must consider raising
20-year-old rates for water services and 10-year-old rates for
garbage services while clamping down on costs.
Union representative Nancy Vinson said she expects the city
will seek concessions from its roughly 30 non-safety employees,
who gave up 10 percent of pay last year through furloughs.
"They could ask for a wage reduction, they could ask for a
different contribution to the retirement system, they could ask
for a higher health benefit contribution," Vinson said. "We have
not been unwilling to talk to them."
Atwater must also seek concessions from its roughly 50
safety and management-level employees, Vinson said, adding she
is concerned city officials are moving too fast on a plan for
declaring a fiscal emergency.
The city council last Wednesday began discussing a fiscal
emergency. The council will again take up the matter on Oct. 3
while city staff compile solutions to Atwater's deficit.
California requires local governments to try to enter talks
with their creditors to avert bankruptcy filings. Municipalities
may, however, declare fiscal emergencies to circumvent the law
and file for bankruptcy.
The city council of San Bernardino, California in July
authorized a bankruptcy filing 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.
Municipal debt market analysts are concerned more cities
with troubled finances in California could use fiscal emergency
declarations as a way to fast-track Chapter 9 filings to attempt
to shed financial obligations.
Standard & Poor's Ratings Services lowered on Friday its
underlying rating on the Atwater Public Financing Authority's
wastewater revenue bonds by four notches to 'BBB-minus' from 'A'
and put the rating on CreditWatch with negative implications.
"The rating action reflects our view that financial distress
in the city's general fund, water fund, and sanitation fund has
negatively affected the credit quality of the wastewater
enterprise through the drawdown of the city's pooled cash
reserves," S&P credit analyst Scott Sagen said in a note.
The CreditWatch action is based on Atwater's consideration
of declaring a fiscal emergency as a potential step toward a
bankruptcy filing, Sagen added.