Road back to solvency will likely be a bumpy one
By Chris Levister
The San Bernardino City Council on Wednesday voted 5-2 in favor of moving forward with declaring bankruptcy after finding that a cash flow situation is so dire that a fiscal emergency exists.
The declaration comes after the city announced last week that it would seek Chapter 9 protection, making it the third California city in recent weeks to make the rare move. The city's next step will be to create a short-term budget to allow it to continue operations until they come up with a long-term solution. That budget is expected to be presented to the City Council at a special session scheduled for 5 p.m. Tuesday. The vote was followed by another authorizing the city attorney to file for bankruptcy, which could come in the next 30 days.
Councilmen Chas Kelley and John Valdivia dissented on both votes. Councilman Fred Shorett, who voted against bankruptcy last week, reversed his position Wednesday night and approved both moves.
"The horse is out of the barn – the whole world knows we're insolvent," Shorett said, according to the San Bernardino Sun. "I will be supporting going forward with Chapter 9 and fiscal emergency." Declining tax revenue, growing worker costs, accounting discrepancies, political infighting and an almost 12 percent unemployment rate in the San Bernardino area helped drive the insolvency. Sixth Ward Councilman Rikke Van Johnson called the formal vote “sad but necessary.” He joined the majority in authorizing the court filing, which councilmen Chas Kelley and John Valdivia voted against.
The city will be looking to slash non-essential services to shore up its $45 million deficit. Public library services may be on the chopping block, even as residents have been using the library's resources to file for unemployment and look for jobs online more than ever, according to library employees.
"We've been cut every year so far since 2008," said library circulation manager Debra Bemben. "I believe we use to have 36 full-time people to run the four branches, now we have 11." The city's dire financial outlook also has residents worried about other services from street repairs to regular trash pickup.
The city says it is still paying all its vendors, but in cash since its credit is no longer accepted. That has added pressure to the city's cash flow problem.
For now, there is no disruption of city services, but employees say they will be on pins and needles until they know more about their future.
San Bernardino confronts a deficit that has reached $45.8 million on a general fund of $129.4 million and would probably run out of money before the end of the state-required 60-day negotiation period, Andrea Travis-Miller, the interim city manager, said July 16. The emergency declaration lets the city skip mediation under California law.
The city has depleted its general-fund reserves, lost access to capital markets, has had its credit lines frozen by Wells Fargo & Co. and must pay cash for goods and services, according to Morris and Travis-Miller. Also, the city faces a $3.4 million payment for employee pensions on July 20.
San Bernardino is set to become the third municipality in California to seek protection from its creditors since late June. Stockton and the ski resort city of Mammoth Lakes have already filed in bankruptcy court.
A fourth city, Compton on the outskirts of Los Angeles, could be the next city to turn to bankruptcy protection.
Compton will run out of cash to make its payroll on September 1, a city official said.