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Another California City Set to go Belly Up


The small agricultural town of Atwater, Calif., has declared a fiscal emergency, as it seeks to avoid becoming the fourth municipality in the state this year to file for bankruptcy protection.

Located about 100 miles east of San Francisco, Atwater is grappling with a $3 million budget deficit, declining city revenues and cost overruns for a new wastewater treatment plant.

The town on Wednesday declared the emergency, which under state law allows it to restructure union contracts, including imposing salary reductions and benefit cuts without negotiations. “We’re working hard to balance the budget and avoid bankruptcy,” said Joan Faul, Atwater’s mayor.

Other California cities have pulled back from the edge after doing the same: “fiscal emergency” is not the same as bankruptcy. But Atwater’s problems are worsened by the fact that they were mismanaging funds even before the 2008 economic downturn, continuously using moneys designated for one project on others, linking together a great chain of irresponsibility.

How many more California cities will follow Atwater? As David Kotok, chief investment officer at Cumberland Advisors, told Bloomberg: “In California, we have a disease, and the disease is spreading. . . . I suspect we’re going to see wholesale warnings and downgrades.”

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