Hotcreek Lawsuit: Town of Mammoth Lakes Possible Ramifications

By now, we’ve all heard about the $30 Million judgment (which is now worth $40 Million) that was awarded in favor of the Mammoth Lakes Land Acquisition (MLLA) for breach of contract by the Town of Mammoth Lakes.

Recently, I’ve had many clients ask me how this judgment will impact general Town services, the property owner, and the visitor. It’s difficult to pin down concrete facts on what we can expect going forward, but a few things, we know to be true.

Essential Town services will continue as always. This includes fire protection, police and road maintenance. It is unlawful for the public to be endangered by eliminating essential services. With regards to increased property taxes, the State and the County mandate taxes set by Prop 13 at 1% of the assessed property value. However, it is possible that the Town could initiate a voter-approved special assessment to pay for the judgment, but this scenario would be highly unlikely. With regards to the recent rumors and speculation that the Town may liquidate assets (such as the much talked about Bell parcel located at the corner of Minaret and Meridian) to help pay for the judgment, my sources say that the Town cannot liquidate or sell assets, which are held in a public trust.

In the event that the Town cannot generate sufficient additional revenues to satisfy the judgment, then municipal bankruptcy is an option that the Town is currently entertaining. Through Chapter 9, Municipal Bankruptcy, the threat of bankruptcy could substantially lower the judgment amount, and extend the payment period over many years. However, the biggest problem of filing for bankruptcy is the stigma in the bond market. This is because the municipality has to pay higher interest rates or because it can’t obtain any credit in the market. This could impact future development by the Town of Mammoth.

As I see it, there are two possible options to generate the funds necessary to pay the settlement amount. Increase revenues, or cut Town services. If the Town raised the Town Occupancy Tax (T.O.T.) to help pay for the judgment, property owners may be impacted in an indirect way by limiting the pricing power of their asset. This could result in loss of rental income and ultimately a decrease in overall asset value. A cut in services could result in a pay cut for Town employees, elimination of whole departments, and/or a renegotiation of pension plans going forward.

As this blog post addresses the recent concerns by property owners and potential property owners, it is unlikely that there would be a substantial negative impact on property values and essential services.

To be continued…

Feel free to post your comments, or contact me for more information.

Verena Robinson, Broker/Owner
Mammoth Lakes Resort Realty
CA BRE License #01512209
verena@mammothlakesresortrealty.com
tel. (760) 924-8521