$43 million legal judgment in development dispute raises doubts about city’s future

12:01 a.m., April 14, 2012
Updated 5:38 p.m. , April 13, 2012

MAMMOTH LAKES — It was a seemingly perfect day at this ski resort town high in the eastern Sierra Nevada this week, one that could have redeemed the season’s poor snowfall under brighter circumstances. Families on spring break were enjoying the slopes or shopping at the luxury outlet mall. Some stocked up at the supermarket for dinner, while others braved the half-hour waits at the town’s popular restaurants.

But despite the appearance of prosperity, the government of Mammoth Lakes is considering bankruptcy because of its inability to pay a $43 million legal judgment in a development dispute dating to 1997. After entering a mediation process under a new California law, the town faces a 90-day deadline to reach an agreement with its creditors, raising doubts about the future of this getaway for residents of Northern and Southern California.

Officials of the town, the only incorporated city in Mono County, say they hope mediation will allow them to avoid filing for bankruptcy. But so far, the developer that won the lawsuit, Mammoth Lakes Land Acquisition, has refused to participate in the mediation process.

Now, amid rising anxiety and recriminations, this resort town just off Highway 395, like other more modest municipalities across the nation, is facing sharp budget cuts. They could affect not only services to full-time residents but also ones like free bus shuttles that cater to tourists. “We’re afraid if the services drop too low, people will choose not to come, and then it becomes a downward spiral,” Jo Bacon, the mayor, said in an interview.

Mammoth Lakes, a town of about 8,200 residents and a budget of $17 million, has become the second municipality after Stockton to use a new state law that requires local governments to hire a third-party mediator to negotiate with creditors before declaring Chapter 9. The union-backed law made it harder for local governments to file for bankruptcy and was intended to protect public employees in cities with large work forces, like Stockton, which entered the mediation process in February. Town officials declined to discuss details of the lawsuit. But residents blamed past officials and legal advisers as failing to properly negotiate with a developer in 1997 in the first place.

The town gave the developer the rights to build a hotel, residential and retail project near the local airport in exchange for making airport improvements. But the town backed out after residents’ objections to development.