Spurred by a projected $3 million budget shortfall caused by higher than expected pension costs and police department salaries, Desert Hot Springs on Tuesday met to discuss spending cuts to stave off bankruptcy.
The California resort town, which filed for bankruptcy once before in 2001, said its general fund would be empty by the end of March and savings must be implemented by the end of December. City Council held a special meeting to consider how to keep the municipality of 26,000 residents from joining two other California cities, Stockton and San Bernardino, and Detroit in seeking protection from creditors.
More than 150 residents attended the meeting, during which considered cuts included: a 10 percent reduction in vendor contracts, which would save $650,000; reducing police salaries; and employee furloughs.
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A report issued last week by Amy Aguer, Desert Hot Springs interim director of finance and administration, floated the idea of filing for bankruptcy. The report found that the city, which had projected a balance of $1.89 million at the end of the fiscal year, would instead be in the hole $3.077 million.
Aguer was widely quoted as attributing the city's budget problems to increases in police salaries and higher pension costs. The average city worker earned $7,1000 in 2011, according to a database on Desert.com. Retiree and health care costs were $28,000 per person that same year, according to the website.
The city, located about 110 miles east of Los Angeles, also filed for bankruptcy in 2001 after losing a court case filed by developers. It exited bankruptcy in 2004.
Municipalities across the country, are struggling with rising unfunded pension liabilities that are eating into city budgets. Some cities have exacerbated the problem by neglecting to make scheduled pension fund payments, using the money to pay for everyday services.
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