[credit provider=”Courtesy of jeremydphoto”]
Facing a massive budget shortfall and potential insolvency, city officials in Montebello, California, have met with lawyers to explore the possibility of filing for Chapter 9 municipal bankruptcy, according to a memo obtained by the Los Angeles Times. According to the memo, municipal government will cease functioning if Montebello cannot obtain a loan by September. The city faces a potential bond default if it does not repay $17 million it illegally borrowed from the city’s state-funded redevelopment agency.
Montebello, an east Los Angeles suburb of 65,000, is struggling with a fiscal mess after years of financial mismanagement and political infighting. City officials cannot even agree on the exact size of the city’s multimillion dollar budget deficit, according to the LAT.
The California controller announced last week he will audit Montebello for financial irregularities as a result of reports that the city moved more than $1 million through two off-the-books accounts.
Montebello also owes $2.2 million to the U.S. Department of Housing and Urban Development, which found last year that the city misused federal housing grants for a project that was never completed.
It is not clear how seriously the city is considering filing for Chapter 9 municipal bankruptcy. But whatever the outcome, layoffs and huge cuts in city services are likely on the way for Montebello.
Is this a harbinger of a major muni meltdown? Click here to see 16 U.S. cities that could face bankruptcy this year >