Is a Fresno Bankruptcy Filing Unavoidable?

In early 2012, the Fresno Mayor said that Fresno may have to file bankruptcy if action was not taken. The city attempted to trim costs and bring in more revenue with a plan to outsource garbage collection, but that plan was scuttled by a referendum known as Measure G.

Now, the dismal state of Fresno’s finances are becoming more and more and apparent. While the average city has enough cash to operate for 81.1 days, Fresno has enough for 0.1 days. That means that if any small thing out of the ordinary budget goes wrong, such as a new air-conditioning unit, Fresno will have to decrease spending in some other area to make up the difference. Fresno has literally no reserves. Even the Wall Street Journal put up a photo essay on Fresno’s bankrupt financial situation (scarily, the essay reminds one of a National Geographic article on a third world country).

So, that brings us to the question, is a Fresno bankruptcy filing unavoidable? At this point, it looks like the Fresno city leadership is taking every action possible to avoid a bankruptcy filing. But just about any small shock could cause Fresno to be the next city seeking bankruptcy protection under Chapter 9 of the Bankruptcy Code.

Detroit is the most prominent city in a Chapter 9 Bankruptcy right now, but there are several smaller cities in California also in Chapter 9, including Vallejo and Stockton (both in the Eastern District of California, which is the same district as Fresno). A recent ruling in the Detroit bankruptcy means that case is likely to proceed and is similar to rulings made in the Vallejo and Stockton cases. So, it appears that Chapter 9 bankruptcies are becoming a more stable and viable tool for cities to consider, which means that Fresno likely has a bankruptcy filing in their back pocket if they can’t make it on the current razor thin margins.