Just weeks after two more California cities filed for bankruptcy protection, San Bernardino officials have announced that they too would be filing on behalf of their city. Before this decision, though, those same officials tried to sell off assets, drastically cut spending and even went so far as to ask public employees to take hits in their paychecks. Ultimately, it was just too late. Tuesday night, it was decided bankruptcy was the only option as questions about the mere $150,000 in the bank accounts would even be enough to meet payroll.
If residents weren’t sure before, once City Attorney James Penman announced the city would have to shut down if it couldn’t meet payroll, they knew then just how dire the situation is. This would also mean law enforcement and other safety agencies would be shut down.
People are not going to work if they do not get paid,
By filing for Chapter 9 bankruptcy protection, the city will be able to renegotiate labor contracts, stall payments to creditors and better protect the city from large lawsuit judgments, Penman said. It would also allow San Bernardino to redesign its budgets and various departments as it finds its way back. This marks the third city to file for bankruptcy in less than two weeks.
City Attorney James Penman explained to both the media and citizens that,
The city needs breathing room and the bottom line is we cannot default on payments to our employees without violating the law.
The city faces a $45 million shortfall with anticipated deficits for at least the next five years. The city has already cut employment by twenty percent in the past few years and negotiated $10 million in annual concessions from employees in each of the last three years. Officials say the problems are due to weak property taxes along with poor sales tax revenues. Pension costs are rising, as well. Despite the cuts and the uncertainty of future economic outlooks, there was no denying this bankruptcy was a last option.
With hundreds of citizens in attendance, it was announced officials had presented falsified budget documents to the City Council for 13 of the last 16 years, effectively hiding the city’s deficit. Jim Morris, the mayor’s chief of staff, said Wednesday that some inaccuracies in past budget reporting diminished the size of the problem but he did not believe officials deliberately misrepresented the data.
San Bernardino could easily become the second largest city in the nation ever to file for bankruptcy. Many recall when Stockton, the Northern California city of nearly 300,000, became the biggest city to file for Chapter 9 bankruptcy earlier this year. The day before Independence Day, a considerably smaller city of Mammoth Lakes voted it too would be filing for bankruptcy.
Another interesting note is that both Stockton and San Bernardino were two of California’s hardest hit areas during the housing bust of a few years ago. Ultimately, the numbers revealed there were three times the national average of foreclosures in 2011.
Gov. Jerry Brown declined to speculate too much, but did say the problems are both the state and the country that are
living beyond their means…means created by a mortgage bubble, by greed, by mistakes, by people not knowing what the hell they were doing, and millions of people have been hurt.
City officials did not provide any anticipated filing date or any other details. They said they would keep residents informed of each decision that’s being made.
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