City Manager Kathy Kivley was terminated from her position during a late-night, closed-session vote following Monday's regular council meeting.
The announcement came at 11:25 p.m. on a 4-to-1 vote, with Councilman Jeff Rivero dissenting.
Kivley said she wasn't given a reason why she was terminated.
Mayor Joan Faul said she couldn't comment on the matter since it's a personnel issue that was conducted in closed session.
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Rivero said he thought the council "should've gone a different direction," but added that he accepts the outcome. Like Faul, he declined to go into details about Kivley's termination.
Atwater is facing a fiscal emergency, with a projected $3.7 million negative general-fund balance for the 2012-13 fiscal year.
Closing a fire station, laying off employees, reducing pay, reducing benefits, personnel restructuring and selling real estate owned by the city are some of the options being considered by officials to remedy the crisis. Some have said the fiscal crisis could end in bankruptcy.
Kivley said she had warned the council of the looming budget problems since the start of her tenure.
"That information was presented in open session in early June that the council was going to be $2.4 million in the hole if they didn't make some significant cuts," Kivley said. "That was done before the budget was adopted."
The city's situation didn't happen overnight, she said, noting that the city has been running a deficit and living off one-time funds. "This city has had financial trouble for several years," Kivley said.
As an example, she said the city couldn't afford to finance its 90th birthday celebration, which is why alternative funds had to be raised.
"You can't take money from a fund that doesn't have any," Kivley said. "You can't do that."
Kivley, who has hired an attorney to represent her during severance negotiations, earned $134,000 a year in base salary from Atwater. Her contract calls for her to get five months of base salary if terminated without cause.
"Do I have hard feelings? No," Kivley said. "It's business -- I get it. I'm sorry. I enjoyed this community. As you know, I bought a house here because I had a four-year contract, so I figured that was a good investment."
Kivley said it's too early to decide how she will move on.
"Financially, I'm solid, so I'm not worried about that. That's not an issue for me," Kivley said. "I just have to decide what I'm going to do, because I'm not ready to retire."
But everything isn't solid in Atwater as employees try to pick up the pieces from Kivley's tenure, according to Planning Commissioner Fred Warchol.
"A heavy weight has been taken off the shoulders of Atwater with the termination of City Manager Kivley," Warchol said in an email. "You can almost see it in the eyes of City Hall employees when they come to work now.
"The thousand mile journey to our fiscal recovery has taken its important first step. Kivley's apparent lack of leadership has been devastating," he wrote.
Despite the finger-pointing, one bright spot for the city has been the performance of Frank Pietro, interim city manager and police chief.
Rivero, the rest of the council and residents have praised Pietro for the work he's put in.
Reporter Mike North can be reached at (209) 385-2453 or firstname.lastname@example.org.