Desert Hot Springs Teeters on the Edge of Bankruptcy, Again

Wednesday, January 01, 2014

Desert Hot Springs passed a milestone on its way to possible bankruptcy when the City Council voted to slash the compensation for its police force by 22%, taking a hack at the public safety sector, which has traditionally fared best under budget cuts.

But the southern California city of 27,000, looking at a $4 million budget deficit, had a special incentive if it was going to slash its way to solvency. The city council appears philosophically opposed to raising revenues. Two-thirds of its $10.6 million city payroll was spent on police, a high percentage partially because that is who is left. The city has laid off two-thirds of its staff in recent years.

So when the council voted unanimously a week ago to slash city payroll, the cops were included.

The 39-member police force is paid very well compared to the community it serves. The average officer’s total compensation was $177,203 in 2011, according to the New York Times, compared to a median household income of $31,356. That is a bit of an apples-to-oranges comparison, but does give a sense of what a poor city Desert Hot Springs is.

City Journal ridiculed a Reuters headline that mistakenly portrayed the town as a wealthy enclave, similar to its Palm Springs neighbor, pointing out that the city has long been known as Desperate Hot Springs. “It’s a magnet for parolees and poor retirees living in low-cost tract houses and trailers,” was the Journal’s succinct assessment.

In the 1980s, Desert Hot Springs had a reputation for gangs and lawlessness. The city disbanded its police force and contracted with the county sheriff’s department for services. The police force was brought back in 1997 by popular demand and may be disbanded again for the same reason.

Four years later, the city went bankrupt, but it wasn’t because of municipal salaries and pensions. Desert Hot Springs lost a lawsuit with a developer who wanted build affordable housing and had to pay $10 million. The city is still paying off the $6 million ($9.7 million with interest) it had to borrow to exit bankruptcy in 2004.

Two years later, the housing bubble began to burst across the country and by 2008 any government (or household, for that matter) budgeting done with a rosy eye to the future was in serious trouble.

Desert Hot Springs survived the next five years and, according to former Mayor Yvonne Parks, all indications were the city was running a $3.1 million surplus going into November’s election. Just days after the election, the city officially said it was on a pace to be $4 million in the red. But deficit numbers ranging up to $6.9 million on a $20 million budget have been bandied about.

That revelation prompted a declaration of a fiscal emergency on November 19, which gives cities the power to renegotiate contracts, and the across-the-board cuts.

The Desert Hot Springs Police Officers Association reportedly filed a complaint with the state Public Employment Relations Board about the cuts and indicated a willingness to contest them in court. Even if the cuts stand, they only account for half of the $4 million deficit.

City officials calculate they have until June to cover the shortfall and avoid the fate of Stockton and San Bernardino, which declared bankruptcy in 2012.

–Ken Broder


To Learn More:

Police Salaries and Pensions Push California City to Brink (by Rick Lyman and Mary Williams Walsh, New York Times)

Yvonne Parks Still Optimistic about Future of Desert Hot Springs (by Reza Gostar, The Desert Sun)

California’s Desert Hot Springs Holds Short of Bankruptcy (by James Nash, Bloomberg)

Desert Hot Springs Declares Fiscal Emergency (by Guy McCarthy, Palm Desert Patch)

Desperate Hot Springs (by Steven Greenhut, City Journal)

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