ATWATER -- A severe lack of financial oversight as well as unwillingness to act by the City Council has led the municipality to the brink of bankruptcy.
While the situation can partially be blamed on the poor economy, city officials have been made aware in recent weeks that depleted funds have eaten away at restricted monies and drained the city's cash reserves.
An August 2012 treasurer's report shows the general fund has a deficit of $5.2 million, a water enterprise fund deficit of $9.3 million and sanitation enterprise fund deficit of $1.3 million.
The public pays fees into enterprise funds, which would ideally allow the services they provide to be self-sufficient. But water rates haven't been raised in 20 years and sanitation rates have been raised in a decade.
As noted in a report by Fitch Ratings, which recently downgraded Atwater's financial status, the City Council's lack of leadership in addressing budgetary issues has resulted in near financial catastrophe, including the possibility of dozens of layoffs and bankruptcy.
Council members have tried to address the water and sanitation deficits in recent years.
In 2009, Mayor Joan Faul made a motion for a vote on rate hikes in both funds, but no other council members supported her action, despite staff warning the council that the rate increases were "a necessity."
Similarly in April, Faul made another motion to begin laying groundwork for rate increases. "We're headed for bankruptcy if we don't do something," she said.
That time, she got a second from Councilman Craig Mooneyham, but the move was struck down with "no" votes from Mayor Pro Tem Joe Rivero, Councilman Jeff Rivero and Councilman Gary Frago.
City officials have conceded that they knew something had to be done to correct deficits in two of the utility funds, but didn't realize just how toxic the situation was. As blocs of council members shot down opportunities to bring more money into city coffers, such as the rate increases, funds were bleeding out faster than they may have realized.
It wasn't until the fiscal crisis started coming into view that the council got enough votes to begin studies on possible rate increases.
Council members have confirmed that they were being told by the staff that there was a $7 million budget surplus. Then six weeks ago they were informed that instead of having a $7 million surplus, all those funds were for restricted uses and not available for general purposes.
Councilman Craig Mooneyham said staff failed to adequately highlight the dire situation the city was facing. The result was a council that didn't see an immediate need to make changes and raise utility rates.
"I think they (the council) didn't do it honestly because we had a huge budget surplus and they didn't want to hit the citizens with a higher bill if they could get away with it," Mooneyham said.
During an all-hands, closed-door meeting with city employees in early September, interim City Manager and Police Chief Frank Pietro joined then-City Attorney Jose Sanchez and Finance Director Glen Carrington to explain how bad the crisis had gotten.
"Last month, basically, has been a hurricane," Sanchez said in the meeting. "At the end of the month, which was actually July 31, I got a call and I was told basically the way our finances work, it seems as though restricted funds that should not be used for paying general fund obligations are being used."
City officials and staffers haven't been able to pinpoint exactly how the funds have been used and haven't been able to determine where the money has gone.