The shadow of sewer debt hangs over Atwater

 
It's hardly news to people who pay attention to public affairs in Merced County. Nonetheless, the sheer stamina of the discontent of the citizens of Atwater and their council is remarkable, appalling, or remarkably appalling, depending on your point of view. Outsiders exposed to Atwater discontent just hope it won't spread and meanwhile imagine reasons for why the citizens of Atwater are the way they are.
We collected here a number of clips about the city government in the last couple of years. The council's behavior has not seemed to change much in the last couple of decades. But, we did find an article from Business Wire, included at the bottom of this posting, about Fitch upgrading Atwater's credit rating from BB to BBB- or, in investment-speak, moving from the least speculative or the speculative category to the lowest category of investment-grade bonds.
This is not a good story, but Atwater's investment in a new wastewater system on the south side of SR 99, for itself, the former Castle Air Force Base, a federal penetentiary, and the unincorporated city of Winton, all on the north side of the highway, when the city and region was in the depths of economic recession,  has caused enough municipal stress to erode public confidence and position. At least that is our best shot at explaining the public meltdown that Atwater calls its municipal government. -- blj

 
 

To boost revenues and move towards budgetary balance, the city implemented a five-year water rate package that increased rates for typical users by 40% for fiscal 2014, followed by additional increases of 15% annually through fiscal 2018. Further, the city implemented a sanitation rate increase that increased rates 63% for fiscal 2014, followed by 6%-7% annual increases through fiscal 2018. The city had implemented a series of sewer rate increase through fiscal 2012 to fund increased debt service costs and does not expect any additional increases in the near term. While Fitch views the city's actions to stabilize the water and sanitation funds as positive, the combined water/sewer rates are now $96.45 per month, or 2.8% of median household income. These rates are well above those of surrounding communities and Fitch's affordability threshold. Consequently, future system rate flexibility will be constrained. -- Business Wire,  Feb. 26, 2015

 
 

Price said he hadn’t responded to a series of text messages from Vierra that he had received after Monday’s meeting because he didn’t want to continue a private discussion on a public meeting that already had been adjourned. He said he planned to contact Vierra the following morning, but received word at 8 a.m. Tuesday that the special meeting already was in the works.

 

He also characterized Vierra’s efforts to contact him regarding the emergency meeting as “an outright lie.”

“It’s unfortunate that we were only on the council for 12 hours before there was a power struggle,” Vierra told the Sun-Star on Wednesday. “It’s a small city and I’ve already been told that the mayor doesn’t like me, in fact he despises me – that’s the word I heard he used.”
Price bristled at the allegation.
“I’ve never said that about her publicly or privately. Ever. I don’t know where she’s getting that, but it’s obviously from someone who wants to start rumors,” Price said. “I don’t know where she’s getting this bullying thing, either – we’ve only had one meeting.”
However, 24 hours later, both elected leaders said they’d cleared the air and pledged to work together going forward.
Vierra said Thursday she was pleased with the outcome of the “positive” closed-session discussions. “The smoke was cleared today,” she said. “I think we all have a clearer vision.” -- Miller, Sun-Star, Dec. 15. 2016

4-10-18
Merced Sun-Star
Atwater council changes requirements for police chief so interim chief can stay on
By Thaddeus Miller
http://www.mercedsunstar.com/news/local/community/atwater/article2084264... 

Atwater City Council waived the educational requirements this week needed to be police chief to allow the interim top officer to remain on the job.

While city leaders brushed off any concerns over the decision made Monday, its another example related to the Atwater Police Department of a decision being made by ex-City Manager Art de Werk and then reinforced after the fact.
 

The council voted 4-1 to waive the city’s requirement for a police chief to have a bachelor’s degree. Interim Chief Armando Echevarria, who has worked in Atwater since 1999, said he has a high school diploma. Mayor Price cast the “no” vote.
De Werk, who resigned last week, appointed Echevarria to the interim chief position on Jan. 22, the same day he announced that Chief Samuel Joseph was placed on leave. It remains unclear why Joseph was removed from the commanding position, and a number of Atwater residents have publicly raised questions over why he hasn’t been reinstated.

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Joseph remains on paid leave.
The day after Joseph was placed on leave, the Atwater Police Officers Association took a vote of "no confidence" in the chief. The union has not released exactly how many officers were at the meaning or the specific number of officers supported the vote.
Atwater requires a police chief to have a bachelor's degree, according to City Attorney Douglas White. He said waving the requirement is not unusual.
"It's a very common practice with interim positions," White said on Monday.
The attorney also reiterated the previous city attorney’s argumentthat Councilmember Cindy Vierra can vote on police matters though her son, Matt Vierra, is an officer. There is no conflict of interest, he said, adding Vierra has a letter of approval from the Fair Political Practices Commission.
Vierra said she voted to waive the requirement because the department has seen enough change in recent months, “especially since it would only be a temporary change.” Echavarria is “extremely qualified” and has years of experience in Atwater, she said via text message.
Echevarria said Monday he preferred not to argue with his detractors about his level of education. “I think there’s more important issues that need to be resolved,” he said. “We really need to get past that and start focusing on the bigger picture, and that’s the solvency of the city.”
The cash-strapped city is looking at cutting more than $1 millionfrom its $42.4 million budget in a city that already mostly shuts down on Fridays and is considered to be understaffed. Leaders are facing a deficit of more than $2.5 million, and more than $7.75 million in unfunded liabilities.
The city has seen five different city managers since Dec. 2016, and the council has often been split on personnel matters and budget-related decisions.
The most recently departed city manager, de Werk, asked for a look into his own background by Los Alamitos-based Freeman Investigative Group. After prodding from Price, de Werk called for the inquiry to try and settle questions about his background and time in Ceres, where he worked until 2014.
The investigation was apparently ongoing for months until de Werk submitted a “hostile work environment” claim on March 19 following a text message containing profanity that the city manager received from Price, according to sources. He resigned from the city and agreed to drop his claim, according to the settlement.
The day he resigned, the investigation ended. No report or draft of a report will be made available, according to a statement from Fredrick Freeman, the owner of the company that specializes in background checks.
City officials have yet to release the cost of the aborted background report. 

4-2-18 

Merced Sun-Star

Is Atwater's city manager leaving already? Here's what we know
 
 

By Thaddeus Miller
http://www.mercedsunstar.com/news/local/community/atwater/article207749039.html
 

Atwater City Council called a special meeting to be held on Tuesday, when leaders will be asked to consider appointing yet another interim city manager - the city's fourth in two years, according to a notice made public on Monday.

The council will be asked to consider appointing Deputy City Manager Lori Waterman to the interim city manager position, replacing Art de Werk, who has had the job since January.
Waterman, who would be the fourth interim city manager since Dec. 2016, was elevated to the deputy city manager spot with the council's approval on March 26.

Mayor Jim Price said de Werk has "chosen to depart," but he was not privy to the exact circumstances that led to de Werk's decision.
The controversial interim city manager has had a bumpy three months in office, drawing abusive language from public speakers and questions surrounding his previous job in Ceres. De Werk submitted to a more thorough background check than is usually necessary to be a city manager in an attempt silence questions surrounding his time in Ceres.
"I understand about catching flack. I get enough myself," Price said on Monday. "What drove him to make this decision is entirely on him."
De Werk could not be reached by phone on Monday, but said his decision is not final. He told the Sun-Star via text message he is "considering the possibility of voluntarily resigning." He could not comment further, he said in the text.
It was not immediately clear how any staffing decisions in Atwater or plans surrounding the city's economic health would be affected if de Werk departs.
Less than three weeks into his interim role, de Werk placed Police Chief Samuel Joseph on administrative leave, where he remains. Armando Echevarria has served as interim chief in the meantime.
Last week, the council implemented de Werk's plan to appoint two deputy city managers in an attempt to bring "stability" to the city. He also pitched a plan to cut more than $1 million in spending in the first steps to rein in the city's budget, which is operating $2.5 million in debt.
"It's too soon to tell," Price said. "The thing of it is that those problems still exist. How we're going to work through them is left to be seen."
Price said city leaders need to find stability with a permanent city manager who has the skills and knowledge to right the ship.
The Atwater permanent city manager search has been ongoing in different forms since the last city manager, Frank Pietro, retired in Dec. 2016. The council members have butted heads with the council generally split into two camps.
A number of controversial votes on city staffing and budget-related decisions have come down to 3-2 vote splits, with Price and Councilman James Vineyard commonly voting together. The other three council members, Paul Creighton, Brian Raymond and Cindy Vierra, have come down on the other side.
Applicant Scott Bride pulled his name out of the hat for the permanent job in May, citing a series of “conflicts” and “distractions” that kept the council from handling “serious issues.” He now works for the city of Merced.
Former Merced City Manager John Bramble served as interim in Atwater for about six months last year.
Graeme Mitchell, the assistant vice president of facilities at the University of Pacific in Stockton, was hired in November and then quit two weeks later before ever going to work. 

2-27-18

Merced Sun-Star
‘This is embarrassing enough,’ Atwater mayor says in public squabble
By Thaddeus Miller
http://www.mercedsunstar.com/news/local/community/atwater/article2024335...
 

A contentious Atwater City Council meeting ended this week with the council agreeing to select a new firm to act as its city attorney, but not before lobbing accusations and butting heads in public.

The council unanimously hired Sacramento-based 
 
Churchwell White as the replacement for Tom Terpstra of Terpstra Henderson, who submitted a letter of resignation on Feb. 14.
Councilman James Vineyard initially resisted the proposal to hire Churchwell White, saying the council was not following the normal procedure of requesting proposals from firms before picking one.
The proposal was dated Jan. 12, a full month before Terpstra announced his plans to leave.

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Councilwoman Cindy Vierra said she had asked at least three firms about their fees before putting Churchwell on the agenda for discussion.
“I’m not going outside of my jurisdiction by asking. I’m allowed to ask. That’s what we’re supposed to do,” she said. “We were having numerous complaints from the city about the charges we’ve been paying for attorney services.”
Terpstra said he spoke with the council in January about his firm’s fees, saying the expenses rose because of at least 39 public records requests, calls for internal investigations and a long city manager search.
The city attorney said it is “standard” for the council to discuss multiple applicants before selecting one.
Vineyard said Vierra’s proposal did not follow procedure. “Making a request of somebody is fine, but putting it on (the agenda) as the only recommendation without conversing without the rest of the City Council is a problem,” he said.
Vierra said she has a hard time talking to Vineyard, accusing him of not returning her phone calls and texts messages, an accusation Vineyard denied before the rest of the council cut off the public argument.
“We’re not going to go through a tit for tat up here,” Mayor Jim Price said. “This is embarrassing enough.”
The council has been firmly split 3-2 on decisions related to the city manager position and other votes in the past year. Residents have called for greater decorum from the council.
But, the tension spilled into the audience at one point with two men arguing near the podium reserved for residents who want to comment publicly. The police chief stood nearby but the cooler heads prevailed.
Price went on to say Atwater has struggled with keeping “regular order” for a “very long time.” He, too, said the council should be discussing options before proposing a specific firm for the attorney’s office.
The mayor went on to say that Vierra and the interim city manager met separately with Terpstra to strike a separate deal. That’s when Vierra interjected.
“You will not sit here and lie about me in public,” she said to Price.
Councilman Paul Creighton also expressed frustration with Price and Vineyard.
“Just because you’re in the minority, it doesn’t make it OK every time you guys don’t get your way to rally this whole thing and turn it into some conspiracy,” he said.
The discussion was put on hold until the end of the meeting. After Terpstra recommended the council hire Churchwell, the council voted 5-0 to hire the Sacramento firm.
The agreement will pay the firm $155 an hour plus travel time and mileage expenses.
 

2-15-18

Merced Sun-Star 

Another shakeup in Atwater as longtime employee calls it quits

By Thaddeus Miller
http://www.mercedsunstar.com/news/local/community/atwater/article2003538...
 

Atwater's city attorney of more than five years has submitted a resignation letter, the attorney confirmed on Thursday, the latest shakeup in a city with a divided City Council.

The letter cites "recent events and changes in management priorities" as reasons that led City Attorney Tom Terpstra to "re-evaluate our firm's relationship" with Atwater. The letter also gave a 30-day notice.
 

Terpstra's firm, Terpstra Henderson, works with a number of Central San Joaquin Valley cities. He's been city attorney for Ripon for 25 years, he said.
"Atwater is a challenging position for anybody," he told the Sun-Star on Thursday. "There's a lot of challenges they face. It's a demanding job and we felt that, at this time, it's time to move on."

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The city attorney position reports directly to the City Council. Interim City Manager Art de Werk said he's been tasked with presenting options to the council on how to replace Terpstra.
Some cities contract with a firm but don't have an attorney in a City Hall office, while other cities have an attorney on-site either full or part time. De Werk said he plans to recommend whichever shakes out to be economical without skipping out on quality.
Atwater has struggled financially since the Great Recession and housing market crash of about a dozen years ago. The city declared a common-law fiscal emergency, which is a precursor to bankruptcy, in October 2012. It's also operating with a more than $2 million general fund debt.
Atwater has seen a tumultuous past year with a split City Council repeatedly butting heads over the next city manager.
"It's not surprising at all that when you have a divided council there's instability," de Werk said. "It's not at all a surprise."
Terpstra takes with him "institutional knowledge" that will be difficult to replace, de Werk said. "The more I work here, the more confidence I have in the staff," he said. "I think we'll pull through."
Councilman Brian Raymond said he was surprised to get the email that said Terpstra is resigning. He said he'd support whichever replacement for Terpstra makes the most financial sense.
"He helped Atwater to navigate through years of financially troubled times," he said. "He was a good colleague and became an even better friend. I wish him the best in the future and thank him for his service." 

4-11-17

Merced Sun-Star
 

Atwater councilwoman says there’s no conflict of interest in search for city manager
By Thaddeus Miller
http://www.mercedsunstar.com/news/local/community/atwater/article1440542...
 
An Atwater councilwoman who will help select the city’s next manager maintains there is no conflict of interest for her even though one candidate is her husband’s former boss.
Councilwoman Cindy Vierra, confirmed to the Sun-Star on Monday that Art de Werk, former police chief and city manager in Ceres, supervised her husband, Danny Vierra, who is a police sergeant there.
Vierra, who joined councilmembers in interviewing de Werk for the city manger position this week, said she’s had only a handful of conversations with him.

 “I’ve spoken to him on a couple brief occasions when he was chief and one time at a wedding we went to when one of the officers was married,” she told the Sun-Star. “That was the only social event we’ve ever attended together.”
De Werk is one of two applicants interviewed for the administrator job. The other is interim City Manager Scott McBride, who has been serving in the office since the first of the year. The council unanimously appointed McBride, who was Atwater’s community development director, as interim city manager in December.
When the City Council will make a decision on the next city manager is unclear. The council did not take a vote during closed session on Monday, according to city staffers.
Vierra said she’s heard unfounded whispers in the community that she plans to make her husband Atwater’s police chief. She denied any such intentions.
“Dan has never applied to the city of Atwater. He does not have a pending application to city of Atwater, and he has no intention of applying,” she said. “Dan has a career with the city of Ceres. He retires in three years, and I think it would be a pay cut to come work as chief.”
According to the most recent numbers from Transparent California, Danny Vierra earned $185,444 in salary and benefits in 2015. That year, Atwater police chief Frank Pietro, who also served as the city’s manager, earned $182,937 in salary and benefits.
De Werk, a former chief and public safety director in Ceres, was relieved of his duties in 2014 after 15 years. He was on medical leave for about two months beginning in April 2014 for treatment and surgery for a benign mass in his brain.
He returned to work on light duty in June of that year but went back on medical leave several days later, following two closed-door meetings to discuss his “discipline, dismissal or release.”
Questions also have been raised about Vierra’s votes on police matters because her son, Matt Vierra, is an Atwater detective. Vierra said that, according to the state Fair Political Practices Commission, she may vote unless there are special circumstances.
“As long as there’s no financial influence or direct influence on his job, I would not need to recuse myself,” she said.
City Attorney Tom Terpstra confirmed her position. “It is her intention to seek appropriate guidance from this office and if necessary, from the FPPC, as matters potentially involving Officer Vierra come before the City Council,” he wrote in an email.
Neither the connection between de Werk and Vierra nor the councilwoman’s relation to her son immediately set off any ethics alarms, according to Jessica Levinson, a professor at Loyola Law School and president of the Los Angeles Ethics Commission.
As long as de Werk isn’t seeking any special treatment, she said, he should be allowed to apply for the city manager job. She said the councilwoman should be “more circumspect” when it comes to decisions related to her son’s job.
“If it’s a question like should they get raises or should they get more beneficial employment terms, then I can see that there’s a problem,” she said. “In general policies regarding the police department, it seems to me that the people elected her because they trust her judgment and they should probably let her use it.” 

12-15-16

Merced Sun-Star
Atwater City Council seeks to mend fences, names interim city manager
By Thaddeus Miller
http://www.mercedsunstar.com/news/local/community/atwater/article1212336...
An emergency meeting of the Atwater City Council ended Thursday with the members presenting a united front hours after a rocky start marred by allegations of “name-calling” and “lying.”
The 3-day-old council, which had two new members sworn in Monday, butted heads over the necessity of the emergency meeting held at noon Thursday. The main topic was a closed-session discussion about the interim city manager, who is to take over after City Manager Frank Pietro retires on New Year’s Eve.
The council unanimously appointed Scott McBride, Atwater’s community development director, as interim city manager as of Jan. 1, according to City Attorney Tom Terpstra. McBride will make an annual salary of $142,248 plus benefits while serving as interim city manager, according to the contract.
Mayor Jim Price, who earlier in the week called the emergency meeting unnecessary, said council members worked out their disagreements and will move on without hard feelings.

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“I want to reassure the public, I want to reassure the council and everyone here, that from this point forward, those things have ended,” he said. “The things that have been said, the things that have been perceived, are in the past.”
Allegations of “lying,” “bullying” and “name-calling” colored the fallout earlier in the week over the emergency meeting. Two new council members, Cindy Vierra and Paul Creighton, said the old council dropped the ball and failed to make sure someone would be in place to take over for the outgoing city manager.
Vierra and Creighton placed first and second in the November election, beating out incumbent Larry Bergman for the two open seats. Price and Councilman Brian Raymond did not face election this year. Joe Rivero did not seek re-election.
Price criticized the emergency meeting, saying it was “ramrodded” through the process and that Vierra and Creighton effectively had cut the public out of a series of important discussions also put on agenda for the emergency meeting.
The agenda posted Wednesday afternoon listed closed-session discussions with labor negotiators regarding the city manager, interim city manager, interim police chief and labor unions. It also included public discussions regarding “increasing city council training budget,” the “city manager powers and duties,” “possible action regarding City Council Reorganization process,” and “possible action regarding city council review of open/current city contracts.”
The council members, however opted to bump discussion of those issues to the next regular meeting of the council.
Fallout over the hastily scheduled emergency session included an acrimonious exchange between Vierra and Price. Vierra said she’d tried to reach out to the mayor but hadn’t received any response. She characterized Price as “hotheaded” and “a bit of a bully” following Monday’s meeting.
Price said he hadn’t responded to a series of text messages from Vierra that he had received after Monday’s meeting because he didn’t want to continue a private discussion on a public meeting that already had been adjourned. He said he planned to contact Vierra the following morning, but received word at 8 a.m. Tuesday that the special meeting already was in the works.
He also characterized Vierra’s efforts to contact him regarding the emergency meeting as “an outright lie.”
“It’s unfortunate that we were only on the council for 12 hours before there was a power struggle,” Vierra told the Sun-Star on Wednesday. “It’s a small city and I’ve already been told that the mayor doesn’t like me, in fact he despises me – that’s the word I heard he used.”
Price bristled at the allegation.
“I’ve never said that about her publicly or privately. Ever. I don’t know where she’s getting that, but it’s obviously from someone who wants to start rumors,” Price said. “I don’t know where she’s getting this bullying thing, either – we’ve only had one meeting.”
However, 24 hours later, both elected leaders said they’d cleared the air and pledged to work together going forward.
Vierra said Thursday she was pleased with the outcome of the “positive” closed-session discussions. “The smoke was cleared today,” she said. “I think we all have a clearer vision.”
Price went on to say the infighting earlier in the week reminded him of the “dark days” of past councils.
“We are a council that is united, and we are going to move forward with the business of the city,” he said. “We have too many items staring at us at this present time, dealing with finances and everything, that are going to have to be addressed  

2-26-15

Business Wire
Fitch Upgrades Atwater Public Financing Auth, CA's Sewer Revs to 'BBB-'; Outlook Revised to Stable
https://www.businesswire.com/news/home/20150226006498/en/Fitch-Upgrades-...
SAN FRANCISCO--(BUSINESS WIRE)--Fitch Ratings has upgraded the rating on the following Atwater Public Financing Authority, CA (the authority) obligations issued on behalf of the City of Atwater, CA (the city) to 'BBB-' from 'BB':
--$18.8 million wastewater revenue bonds, series 2008.
The Rating Outlook is revised to Stable from Positive.
SECURITY
The bonds are secured by installment payments made by the city to the trustee as assignee of the authority. The city's obligation to make installment payments is secured by a pledge of gross revenues of the city's sewer system (the system). The bonds are also secured by a cash-funded debt service reserve fund (DSRF) funded at the maximum amount allowable by law and held with the trustee.
KEY RATING DRIVERS
STRUCTURAL BALANCE DRIVES UPGRADE: The upgrade reflects the city's recent revenue-raising actions that eliminated structural imbalances in the city's general, water and sanitation funds, thus reducing pressure on the sewer fund over the last two years as well as a modestly improving economy.
ADEQUATE FINANCIAL PERFORMANCE TO CONTINUE: The upgrade is further based on the system's adequate financial performance. Debt service coverage (DSC) has equaled 1.3x each of the last two years ending (unaudited) fiscal 2014, and is estimated at 1.4x through the forecast period.
STABILIZED CASH; LOANS OUTSTANDING: The city's pooled cash position has stabilized after drawdowns due to deficits accumulated in various funds. Risks of further loans by the system to shore up deficits in other city funds appear reduced. Further, the city has now established an interfund loan policy and loan repayment amortization schedule for outstanding loans owed to the system.
HIGH DEBT, MANAGEABLE CAPITAL: The city's recent succession of debt issuances to complete construction of a new wastewater treatment plant in order to comply with environmental requirements has resulted in high debt levels and slow amortization. However, capital needs are limited going forward.
LIMITED SERVICE AREA AND RATE FLEXIBILITY: Monthly charges are substantially higher than surrounding communities and Fitch's affordability threshold. The recently implemented increases in water and sanitation rates will further pressure the customer base. Moreover, the service area's below-average income metrics and high unemployment challenge the city's ability to increase rates in the future.
RATING SENSITIVITIES
CONTINUED FISCAL SUSTAINABILITY: Fitch expects continued structural balance across all funds and gradual improvement in overall liquidity. Re-emergence of imbalance or reduction of reserves could result in negative rating action.
MAINTENANCE OF SYSTEM FINANCIAL PROFILE: The rating is based on achievement of at least forecast DSC and liquidity levels. As such, a material decline in performance without mitigating factors could lead to negative rating actions.
CREDIT PROFILE
Atwater is located in northeast Merced County, in the central portion of California's San Joaquin Valley. With a population of about 28,000, it is a small agricultural-based community with a federal prison at the site of the former Castle Air Force Base, which closed in 1995. The sewer system provides wastewater collection, treatment, and disposal to the city's residents and to the Town of Winton (population of about 9,000), a U.S. penitentiary (inmate population of around 1,200), and Castle Airport Aviation. These three customers combined provided about 22% of service charge revenues in fiscal year 2014.
STRUCTURAL BALANCE ACROSS FUNDS
The upgrade reflects the city's actions to date to address structural deficits in the general, water, and sanitation funds through fiscal year 2013 that stemmed largely from declining revenues, rising expenditures, and failure to raise rates in the water (for 20 years) and sanitation funds (for 10 years). For the general fund, home values dropped severely during the downturn, significantly reducing property tax revenues. In addition, almost all other general fund revenues, with the exception of sales taxes, also experienced declines in recent years.
To boost revenues and move towards budgetary balance, the city implemented a five-year water rate package that increased rates for typical users by 40% for fiscal 2014, followed by additional increases of 15% annually through fiscal 2018. Further, the city implemented a sanitation rate increase that increased rates 63% for fiscal 2014, followed by 6%-7% annual increases through fiscal 2018. The city had implemented a series of sewer rate increase through fiscal 2012 to fund increased debt service costs and does not expect any additional increases in the near term. While Fitch views the city's actions to stabilize the water and sanitation funds as positive, the combined water/sewer rates are now $96.45 per month, or 2.8% of median household income. These rates are well above those of surrounding communities and Fitch's affordability threshold. Consequently, future system rate flexibility will be constrained.
On the general fund side, in March 2013 voters approved a 10-year one-half-cent sales tax restricted for public safety spending. The sales tax generated $1.4 million in fiscal 2014, most of which was used to restore salary increases for public safety. While these funds are not expected to increase reserve levels, they should improve cash flow and reduce what otherwise could have been significant wage pressure.
ADEQUATE FINANCIAL POSITION
The structural imbalances in the city's general, water, and sanitation funds eroded the city's fiscal capacity and led to a sharp reduction in city pooled cash resources in the fiscal 2012-2013 timeframe. The drawdown of pooled cash negatively affected system cash levels given system resources accounted for most of the city's total cash balance. According to management, all funds are now self-supporting and will require no additional interfund transfers from the sewer fund. Further, the council adopted an interfund transfer policy requiring council approval of transfers and more transparent reporting. It also adopted resolutions outlining the amortization schedules of the outstanding loan payments to the system totaling $8.7 million, which is to be repaid to the sewer fund from fiscal 2016 to fiscal 2030.
The city did implement an accounting change in fiscal 2014 in which sewer fund cash was reduced to bring cash deficits in the other funds to zero. As a result, the sewer fund's cash balance dropped on an accounting basis from $7.4 million in fiscal 2013 (or 680 days cash on hand) to just $2.5 million in fiscal 2014 (233 days). Going forward cash levels are expected to gradually increase given the loan repayments as well as lack of additional planned interfund borrowing. DSC, which has been adequate in the 1.2x-1.3x range in recent years is expected to improve slightly to 1.4x through fiscal 2019.
WILLINGNESS-TO-PAY/ACCELERATION CONCERNS LESSENED
The city council declared a fiscal emergency in October 2012, but did not pursue any additional steps to erode its perceived willingness to pay system bonds. Moreover, in November 2012 the city council ceased its discussion related to possible confidential mediation process with creditors pursuant to the state's A.B. 506. The city also passed a fiscal 2013 budget in February 2013 and an operationally balanced budget for fiscals 2014 and 2015. Fitch does not currently anticipate that the city will enter into the A.B. 506 process and/or file for Chapter 9 bankruptcy protection.
ELEVATED DEBT PROFILE; LIMITED CAPITAL NEEDS
The system currently operates one wastewater treatment plant (WWTP). The authority has issued approximately $64 million in wastewater revenue bonds since 2008 - nearly tripling outstanding system debt - to construct the new WWTP. The WWTP was designed to comply with more stringent requirements associated with the system's discharge permit, including a move to tertiary treatment standards. As a result of the authority's recent debt issuances, system per customer and per capita debt levels are 6x-7x higher than Fitch's national medians and projected debt levels are about 5x higher. In addition, amortization of principal is very slow, with just 18% and 47% of principal retired in 10 and 20 years, respectively. However, future capital needs are modest with just $1.3 million in planned capital spending through fiscal 2019 and no additional borrowing expected.
WEAK SERVICE AREA
Typical of agricultural communities, unemployment levels (13.1% as of December 2014) are well above state and national averages while income levels are below average. Further, median household incomes are well below, and poverty rates well above, state and national averages. The area experienced a significant slowdown in growth during the economic downturn as exemplified by a sharp decline in connection fee revenues and city assessed values (AV). However, there are signs of a rebound with a combined AV increase of nearly 17% over fiscals 2014 and 2015.
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in Fitch's Revenue-Supported Rating Criteria, this action was additionally informed by information from Creditscope.
Applicable Criteria and Related Research:
--'Revenue-Supported Rating Criteria' (June 2014);
--'U.S. Water and Sewer Revenue Bond Rating Criteria' (July 2013).
Applicable Criteria and Related Research:
U.S. Water and Sewer Revenue Bond Rating Criteria

Revenue-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750012

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11-5-14

California Policy Center
California's Most Financially Stressed Cities and Counties
November 5, 2014/by Marc Joffe, Julie Lark and Edward Ring
https://californiapolicycenter.org/californias-most-financially-stressed...
 

(6)  ATWATER  –  Default Probability, 1.22%

Atwater city council declared a fiscal emergency in October of 2012. The city cited ongoing structural deficits and negative fiscal impacts from the state’s elimination of redevelopment agencies for its financial hardships. Since the beginning of the recession the city’s revenues failed to keep pace with expenses, leading to mounting debts and a negative general fund balance in 2011. Reserve funds were depleted to help finance an $85 million waste water treatment plant. By 2013, the city faced structural deficits of more than $4 million in the general fund and enterprise funds. During the months following the emergency declaration, the city responded to these economic challenges by dramatically reducing its workforce, cutting employee wages by five-percent and passing the Measure H half-cent sales tax increase to fund public safety.
 

With a relatively high unemployment rate of 14.7-percent and a median income of $23,083, Atwater citizens are in no position to shoulder the city’s financial problems. Unfortunately, city officials had to balance the current budget through a combination of utility rate increases and continued reductions in operating expenses. City services remain at a minimum, and staffing levels are down from 134 positions in 2008 to just 78 in 2014, a total reduction of 42-percent. Though workers have continued to absorb a significant part of the burden through mandatory 10-percent furloughs and increased health costs, the city’s financial condition remains weak. Significant increases to calPERS retirement costs loom on the horizon, and the city continues to operate without the cushion of reserve funds. The local economy suffered another setback when Mi Pueblo Foods, which served as the anchor store of the Bellevue Road Shopping Center, closed its doors in August 2014 and laid off 91 employees. With no additional revenue increases projected over the next five years and little left to cut from the budget, the city’s solvency remains doubtful.
Sources:
Ten California Cities in Distress, May 15, 2013, USA Today
http://www.usatoday.com/story/news/nation/2013/05/15/ten-california-cities-in-distress/2076217/
City of Atwater Comprehensive Audited Financial Report, June 30, 2013
http://www.atwater.org/doc_files/Atwater%20Fin%20Stmts%206-30-13.pdf
Atwater Hires a New Finance Chief, Sept. 9, 2014, Merced Sun Star
http://www.mercedsunstar.com/2014/09/09/3839325/atwater-hires-a-new-finance-chief.html
Atwater Adopts Barely Balanced Budget, May 6, 2014, Merced Sun Star
http://www.mercedsunstar.com/2014/06/24/3716140/atwater-adopts-barely-balanced.html
Mi Pueblo Foods Closing in Atwater, June 16, 2014, Modesto Bee
http://www.modbee.com/incoming/article3166434.html
Atwater, CA Income and Economy, USA City Facts
http://www.usacityfacts.com/ca/merced/atwater/economy/