{"id":682,"date":"2014-08-14T21:50:20","date_gmt":"2014-08-14T21:50:20","guid":{"rendered":"https:\/\/bitvore.com\/?p=682"},"modified":"2017-06-28T04:13:47","modified_gmt":"2017-06-28T04:13:47","slug":"desert-hot-springs-serial-defaulter","status":"publish","type":"post","link":"https:\/\/bitvore.com\/2014\/08\/desert-hot-springs-serial-defaulter\/","title":{"rendered":"Desert Hot Springs: Serial Defaulter?"},"content":{"rendered":"

\"desert<\/a>Carmen Reinhart and Kenneth Rogoff popularized the notion of sovereign serial defaulters<\/a> \u2013 nations that repeatedly go through cycles of fiscal mismanagement, default and recovery. High profile serial defaulters include Argentina, Greece and Venezuela.<\/p>\n

Could a US municipality also become a serial defaulter?\u00a0 Investors may wish to look at the small California City of Desert Hot Springs for a possible answer. As Bitvore users learned from local media<\/a> last week, the city just declared its second fiscal emergency in just eight months \u2013 but its history of financial crises began many years earlier.<\/p>\n

The city initially defaulted on municipal bonds in 1999 and filed for bankruptcy in 2001. While this previous crisis is often attributed to an adverse court judgment, my research paints a more complex picture (see http:\/\/www.treasurer.ca.gov\/cdiac\/publications\/probabilities.pdf<\/a> starting at page 59 for details). The city\u2019s 1999 default followed multiple years of deficits which were exacerbated at the end by issuance of high interest revenue anticipation notes.<\/p>\n

Desert Hot Springs\u2019 2013 CAFR<\/a> shows $80 million in total debt, about half of which was incurred by the now-defunct redevelopment agency – whose accounts are carried as a fiduciary fund on the city\u2019s books. Much of Desert Hot Springs governmental activity debt is related to the litigation that caused the city\u2019s bankruptcy. In 2004, the city issued $9.725 million in judgment obligation bonds<\/a> to satisfy an award to Silver Sage Developers. The development firm filed suit against Desert Hot Springs under the Fair Housing Act after the City Council threw out its plan to build a mobile home park.<\/p>\n

Principal on these bonds does not start coming due until 2023, so they don\u2019t seem to be a major factor in the city\u2019s current troubles. A staff memo<\/a> prepared ahead of Desert Hot Springs November 2013 fiscal emergency declaration cited persistent deficits as the cause of the city\u2019s problems \u2013 repeating the pattern that preceded its 1999 default.<\/p>\n

The fiscal emergency declaration allowed the city to reduce employee benefits and holidays, but, according to an August 2014 staff memo, these savings were offset by increased CalPERS contributions, fire station costs and litigation expenses. Not mentioned in the memo was the City\u2019s failure to gain voter approval<\/a> for a special parcel tax on vacant properties in the June 2014 election. The parcel tax would have raised enough money to close the city\u2019s deficit.\u00a0 Now that the Council has once again declared a fiscal emergency, staff can pursue additional major cuts and\/or a special election to consider another tax increase.<\/p>\n

Other options include disincorporation, default and bankruptcy. Since Desert Hot Springs is a relatively small city outside a major media outlet, the best coverage of this city\u2019s ongoing drama is to be found in local newspaper and television station web sites \u2013 just the type of content that Bitvore sifts through each hour.
\nWhether or not you have an interest in Desert Hot Springs debt, the city\u2019s story is worth tracking. As other troubled cities return to the bond market, one has to wonder whether they too could become serial fiscal crisis candidates \u2013 or even serial defaulters.\u00a0 Events in a small southern California city may offer some insight into these larger situations.<\/p>\n","protected":false},"excerpt":{"rendered":"

Carmen Reinhart and Kenneth Rogoff popularized the notion of sovereign serial defaulters \u2013 nations that repeatedly go through cycles of fiscal mismanagement, default and recovery. High profile serial defaulters include Argentina, Greece and Venezuela. Could a US municipality also become a serial defaulter?\u00a0 Investors may wish to look at the small California City of Desert […]<\/p>\n","protected":false},"author":5,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"_links":{"self":[{"href":"https:\/\/bitvore.com\/wp-json\/wp\/v2\/posts\/682"}],"collection":[{"href":"https:\/\/bitvore.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/bitvore.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/bitvore.com\/wp-json\/wp\/v2\/users\/5"}],"replies":[{"embeddable":true,"href":"https:\/\/bitvore.com\/wp-json\/wp\/v2\/comments?post=682"}],"version-history":[{"count":0,"href":"https:\/\/bitvore.com\/wp-json\/wp\/v2\/posts\/682\/revisions"}],"wp:attachment":[{"href":"https:\/\/bitvore.com\/wp-json\/wp\/v2\/media?parent=682"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/bitvore.com\/wp-json\/wp\/v2\/categories?post=682"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/bitvore.com\/wp-json\/wp\/v2\/tags?post=682"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}