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Mammoth Lakes, California Files for Bankruptcy

Harris Kenny
July 5, 2012, 2:56pm

Earlier this week Mammoth Lakes, California filed for bankruptcy, news largely missed in the run up to the Fourth of July holiday. The Mammoth Lakes Town Council voted unanimously on Monday July 2 to authorizing the filing of a petition for relief under Chapter 9 of the Bankruptcy Code in U.S. federal court. Mammoth Lakes has 7,700 permanent residents and is located about 300 miles north of Los Angeles. Mammoth Lakes is Mono County’s only incorporated community and it is best known for its proximity to Mammoth Mountain Ski Resort.

On June 27 the town issued the results of its AB 506-mandated mediation, which included 16 total parties but did not include its largest creditor, Mammoth Lakes Land Acquisition (MLLA). The mediation lasted 60 days and a full list of agreements reached is available on the town’s website here. Parties include groups like CalPERS (California Public Employee Retirement System), public employee unions, non-profit organizations, contractors, bodies of government, for-profit developers and financial institutions. MLLA was one of several parties that did not participate in mediation.

According to a statement issued by the town:

Bankruptcy, unfortunately, is the only option that the Town is left with, after its largest creditor, Mammoth Lakes Land Acquisition (MLLA) repeatedly refused to mediate its $43 million judgment against the Town, and obtained a State court order requiring payment of the full judgment by June 30, 2012.

City officials distill their fiscal woes down to two problems:

  1. "A lack of sufficient revenue to pay its current and anticipated obligations, as evidenced by a $2.7 million initial shortfall in its 2011-2012 fiscal year budget, balanced through painful measures in June 2011, an additional unanticipated shortfall of $0.9 million in the same 2011-2012 fiscal year that forced the Town to reduce its already low available cash, and a projected $2.8 million budget shortfall in its 2012-2013 fiscal year.
  2. A Writ of Mandate issued by a State Court ordering the Town pay a $43 million judgment owed to MLLA by June 30, 2012.”

The $43 million judgment owed to MLLA appears to be what pushed Mammoth Lakes over the edge. The Los Angeles Times reports:

A state appellate court decision in December 2010 upheld the judgment and chastised the town for trying to back out of the agreement it signed in 1997 with Mammoth Lakes Land Acquisition.

The agreement required the developer to make improvements to nearby Mammoth Yosemite Airport’s fixed-based operations. In return, it would receive rights to develop a $400-million Hot Creek hotel project on 25 acres at the airport and an option to buy the land.

The court found that Mammoth Lakes changed its priorities in 2007 after it determined the project would interfere with Federal Aviation Administration policy governing the use of the airport property for aeronautical purposes and, as a result, derail the town’s plans to extend the runway to accommodate Boeing 757 passenger jets.

The developer, which had invested in some improvements at the airport, filed a breach of contract lawsuit against the town after it refused to move forward with the hotel project until the FAA policy issues were resolved.

The court found the city had not lived up to its end of the bargain.

This filing is reminiscent of Stockton, California’s recent filing, in that the city was ill equipped to handle the economic downturn and aggressive economic development projects initiated during the boom years went sour. It's important to note that every city is unique and this reinforces that we are not seeing contagion at the local level. Mammoth Lakes is hoping that through bankruptcy they can solve fiscal woes and either free up revenue, or issue additional bonds, to pay its creditors over the next ten years.

The following public services will remain open and/or available:

For more on municipal finance issues, see my previous posts on Stockton, California and Jefferson County, Alabama. For an update on Harrisburg, Pennsylvania, see this post by Maggie Clark of Stateline (in short, the state barred the city from declaring bankrupcty until November 30.) For an update on Detroit, Michigan, see this post from Melissa Maynard of Stateline (in short, officials continue to hammer out the details of the consent agreement signed in April by Michigan Governor Rick Snyder and Detroit Mayor Dave Bing.)


Harris Kenny is Policy Analyst


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