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San Bernardino's finances were already dire in 2010

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San Bernardino City Hall. In 2010, the City Council was warned that bankruptcy was on the horizon.

A former San Bernardino City Council member, Tobin Brinker, commented on my post from yesterday about the bond markets being taken by surprise by the Inland Empire municipality's vote this week to become the third California city to declare bankruptcy. The one-time representative of the city's third ward wrote about a council meeting that took place in 2010: 

[C]ity Treasurer David Kennedy spoke and explained the city had lost $40 million dollars in its investment pool in the previous three years. If major changes aren't made he will not be able to certify that the city can meet its payroll for the next six months. He was the first person to mention BANKRUPTCY. The City Finance Director Barbara Pachon spoke and shared a slide titled "Symptoms of Bankruptcy." She informed council members that we unfortunately meet all of the symptoms....

In his comment, Brinker also detailed a presentation from the same meeting that showed the city running a deficit for 13 of the previous 15 years. 

I reached him by phone today, and he confirmed that he had made those comments. He also brought up his efforts to alter the way the city handled its pension obligations — obligations that have necessitated issuing over $40 million in pension obligation bonds to cover shortfalls, according to city documents. 

"I started talking about the need for pension reform in February of 2011," said the Republican Brinker, who was defeated for re-election in 2011 by John Valdivia. He painted a picture of pension costs that had nearly doubled for San Bernardino since 2006. And he downplayed a 2011 agreement that the city achieved to get new hires to pay their share of pension contributions (previously, the city had paid 100 percent). 

"I understand how public employees unions work," said Brinker, a pubic school teacher. "And that's an easy one to give away. It looks good on paper, but we're not hiring people. When the economy recovers, the first thing the public employees will bargain for is for any new hires to be raised up."

When asked if he considered himself a canary in the coal mine for San Bernardino's current woes, he said that he felt vindicated for what he was saying before his election defeat, which he argues came at the hands of unions that had previously supported him. "I didn't want the city to go bankrupt," he said.

Brinker dismissed charges made by City Attorney James Penman that San Bernardino had been falsifying its finances for more than decade, accusing Penman — a two-time loser in mayoral races to current Mayor Patrick Morris — of capitalizing on the media's appetite for a scandal. 

He said that at the August 23, 2010 city council meeting, the then-city manager said that previous city councils had made bad decisions. "That was the first meeting when we heard 'You're going to go bankrupt.'"

Mayor Morris' Chief of Staff, Jim Morris, confirmed that bankruptcy was being discussed openly by the council in 2010. He also stressed, as he had in a previous conversation with me, that San Bernardinio's move toward Chapter 9 is being driven by a cashflow crisis, not by an inability to manage its bond payments. As I reported yesterday, the city's bond ratings have been cut from investment grade prior to this week, but so far the bond markets haven't substantially discounted the city's debt.

Morris said that after what he called the "dire warnings" issued in 2010 by the City Manager and the Finance Director, budget cuts were made and some concessions were achieved from city workers. "But those expire each year," he said. "And then you have to go back to the table on negotiations, and then the clock resets on those labor costs." 

In an interview with KPCC's Steven Cuevas, San Bernardino Police Chief Robert Handy pointed to past concessions that officers have made to the city. "Our employees for the past three years have given up part of their salaries to try and help the budget situation and they are willing to continue to help in whatever way they can, I think. We just need to get through some of the politics and the drama to get this sorted out."

Observers of the San Bernardino fiscal crisis have pointed to the cost of maintaining its police and fire services as the city's most serious financial burden. Morris pointed out that those two public safety departments account for 72 percent of the city's current budget (which is facing a deficit of more than $40 million). But he added that, from Mayor Morris' point of view, negotiations with other city department were always in the picture — and that the city departments that have absorbed the biggest cuts are in non-safety-related areas.

He singled out the firefighters union for particular scorn. 

"Over the past two years, the police have come to table with everybody else, But the fire union wouldn't come to the table. They say, 'We're not gonna give you anything.' They want to provide their own ideas and solutions, rather than take a 10 percent pay cut."

According to Morris, California allows a city to impose a solution to its fiscal problems if it reaches a negotiating impasse.

San Bernardino attempted to do this — by mandating furlough days, according to Brinker — but the city was sued by the firefighters union. So far, the union has won in the courts, and although the city has appealed the decisions, Morris said that several city council members weren't supporting the appeals.

A call to the firefighters union's public information officer, Steve Tracy, wasn't returned.

San Bernardino hasn't yet declared bankruptcy. Nor has the city addressed how it might deal with a new state law that compels municipalities to enter a 90-day mediation process with creditors prior to seeking Chapter 9 protection. According to legal experts, one way to move more rapidly to bankruptcy would be for the city declare a "fiscal emergency," citing circumstances so dire that mediation would be a needless delay of the inevitable.

Morris said that a City Council vote to declare a fiscal emergency may happen on Monday.

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With contributions by Steven Cuevas

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