The nation's fiscal cliff nightmare played out in miniature form in the mountain town of Mammoth Lakes. But four months on, residents there say they have settled into acceptance

It had endured earthquakes, volcanic gases and droughts, but Mammoth Lakes, a scenic town perched high in the Sierra Nevada, is best known for falling off its very own fiscal cliff.

The town filed for bankruptcy in July after being bungling a huge property deal, a fiasco which made headlines and was calculated to cost each man, woman and child more than $5,000.

It was a nation's fiscal nightmare played out in miniature amid the pine forests and ice-capped mountains of northern California, a picturesque stage for an ugly financial tale.

Four months later the season's first snow blankets Mammoth Lakes and residents are making a discovery about fiscal disaster: life goes on.

"It was almost like a grieving process," said Matthew Lehman, the mayor. "You go from denial to anger to blame and in the end, relief."

Authorities and businesses have adapted, cutting costs and seeking new opportunities, and austerity's axe has, for now, spared residents the worst.About $2m of the town's annual $18m budget must go to paying off the debt for the next 23 years, a figure which at first shocked, then slowly settled into acceptance.

The police force will be slashed, snow clearing curbed and the municipal swimming pool may close but basic infrastructure will survive. "There is resignation. People are getting used to the idea that this is what it's going to be like," said George Shirk, news editor of the Mammoth Times.

The town is not typical. Unlike Greece, the US federal government or broke California cities such as Stockton, it can rely almost entirely on tourism.

"Here you can screw up everything but no one can take away the mountain and the whole reason Mammoth exists," said Shirk.

About 1.5 million visitors come here each year to ski, snowboard, hike and fish, sustaining a permanent population of just 8,234. This summer's influx set records, packing hotels and restaurants like never before.

The bankruptcy filing did not discourage visitors, said John Urdi, the town's tourism executive director. "If anything, the added exposure has been good for us. People who wouldn't otherwise have known about us saw us in the news and were curious." This week's snow augured a lucrative winter. "The phones are already ringing."

Perched at 7,880 feet, Mammoth Lakes boasts a dramatic landscape of vertiginous peaks, hot springs and volcanic gases. It is subject to roving bears, droughts, storms and earthquakes, including a swarm which shut much of the town in 1989.

It also suffered, according to Shirk, the news editor, a fit of "hubris and greed" which fuelled an ill-fated 1997 deal to let a developer build a $400m resort in exchange for improvements to the airport. When the town council subsequently reneged on the deal, partly because federal authorities opposed it, the developer, Terry Ballas, sued for breach of contract in 2006.

Thus began a legal odyssey. A jury in Bridgeport, a nearby farming hamlet, awarded Ballas and his partners $30m. Many in Mammoth Lakes believe their rural neighbour used the judgment to punish their perceived city slicker, dollar-counting ways. "There has always been conflict between us and Bridgeport," said Lehman, the mayor.

Mammoth Lakes appealed and lost again, legal fees snowballing the sum to $43m. The town council filed for bankruptcy but before it took effect reached a settlement with creditors in August to pay a reduced sum, $29.5m, over 23 years. Interest, if payments follow that schedule, will bring the total to $48.5m.

"There was a whole spectrum of finger-pointing," said Lehman. Others recall it as a time of foaming rage. Greek-style austerity has not materialised but there is recrimination, not least in the police department which has been cut in recent years from 25 to 17 officers, and is now set to be whittled to 10.

"It's terrible. It's a big morale issue for us because obviously the council doesn't respect the job we do," said Lt John Mair, one of those for the chop.

"A consistent line of bad decisions has gotten us into this mess and this is another one." The town council is considering phasing out the department altogether and letting the county sheriff fill the void.

Ruben Ramos, a police association board member, said the union was skimping on leaving parties to build up a legal fund. "It's like a big cloud. These guys deserve more."

There is public sympathy for officers but few fear a crime wave. "This isn't Compton. We don't have gang wars, we have a bunch of drunks at the weekend," said Shirk.

Rick Wood, a long-serving council member, defended slashing the police budget and said the level of public services needed to be debated. "I'm optimistic. It's not the end of the world for the government of Mammoth."

To woo more off-peak visitors the town has launched a marketing drive and series of initiatives, including musical concerts, a downhill "kamikaze" bike race, a half-marathon and improved track facilities for elite athletes seeking altitude training.

If President Barack Obama and Congress need extra wind for the federal budget tussle, they know where to come. © Guardian News and Media 2012

[View from summit of Mammoth Mountain via Shutterstock.]