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October 27, 2004

DHS Bankruptcy

I never knew the reason for the recently resolved bankruptcy of the city of Desert Hot Springs. An article in the Desert Sun explained it briefly.

Three years after going bankrupt, the city of Desert Hot Springs is finally having its Chapter 9 status removed today with the city's newly issued bonds expected to pay off its $10.85 million debt.

And leaders say that will help the fast-growing town attract new retail, residential and tourist developments.

The city recently issued 40-year bonds totaling $12.785 million - more than a half of its annual budget - to pay off its debt incurred through a failed 14-year legal battle with a developer over a private housing project in the city.

The repayment of the debts will be made today, with $8.85 million paid to Los Angeles-based Silver Sage Partners Ltd., and another $2 million to other creditors including Bank of America and Citibank, city officials and attorneys said.

The remaining balance - about $2 million - will go to the debt reserve fund, underwriters and the city's general fund.

"People and businesses in particular looked at the bankruptcy as a cloud over the city. We were looked upon as a bad risk," said Vice Mayor Mary Stephens.

"Now that the cloud is gone, they no longer look at us as a bad risk," she said.

The city's ordeal started in 1990 when its city council rejected a proposal made by Silver Sage to buy an existing mobile home park on Pierson Boulevard and build 116 houses there for low-income families.

Silver Sage sued the city, claiming that some of the then-City Council members made discriminatory comments against Mexicans and African-Americans, who were expected to live in the planned housing complex, during their deliberation of the plan in official meetings.

A U.S. District Court in 2001 found that the city's 1990 decision to deny the housing project violated the Federal Fair Housing Act, leaving the city no other choice but to file its bankruptcy in December that year.

"I'm very happy about the news," said William Davis, a Silver Sage attorney who has dealt with the lawsuit against the city for the last 13 years. "We must make sure this will not be repeated."

Now that the city is set to emerge from bankruptcy, Desert Hot Spring officials are already hopeful that the good news will help bring more businesses - especially retail shops - to the rapidly growing city of 20,000, from which the city can expect more sales tax income.

"Once we've got big-box retailers, we're going be in a lot better shape," said Vice Mayor Stephens.

The local business community also welcomed the news.

"It's a benefit that they are getting out of financial woes," said Tom Halleck, president of Six Kids Development and Construction, a local home builder.

Halleck said that the city's exit from bankruptcy would add a momentum to the growth of the city, whose population is expected to triple to 60,000 in five years.

"Desert Hot Springs is actually one of the last areas of the desert to experience major growth," he said.

Halleck's company is currently building about 150 homes in Desert Hot Springs - 50 homes more than this time last year. Halleck is also hoping to open a new 250-unit spa hotel in the city as early as in March - pending the city's approval.

"Desert Hot Springs has been stagnant for so long, but now a lot of developers in the desert are going up there and turning their focus towards the city," Halleck said.

Filed under Coachella Valley,Desert Hot Springs | permalink | October 27, 2004 at 08:05 AM

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