Explaining Southern California's economy

San Bernardino bankruptcy: Much worse than Stockton

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San Bernardino City Hall. The city's fiscal crisis could make its possible bankruptcy far worse than Stockton's.

The San Bernardino City Council voted last night to prepare to file bankruptcy. If the Inland Empire city does enter Chapter 9, it would be the third California municipality to do so this year, following Stockton and Mammoth Lakes.

But according to the bankruptcy lawyer who helped draft AB 506, the new California law that compels cities considering bankruptcy to first submit to a "neutral evaluation" process, and an economist who studies the Inland Empire, San Bernardino could look a lot worse than either of the cities that have already filed for Chapter 9.

"The San Bernardino situation is extremely challenging," said Karol Denniston of Schiff Hardin in San Francisco. "They don't seem to have considered the 506 process." 

A call to an aide to Mayor Patrick Morris to determine whether San Bernardino had considered going through mediation was not returned. [UPDATE: The mayor's Chief of Staff, Jim Morris, got back to me late Wednesday to explain that the city had considered the mediation requirement and is working with bankruptcy attorneys to ensure that the city is complying with state law. He also said that a fiscal emergency hasn't yet been declared but that it could soon be, in reponse to what he described as San Bernardino's cashflow crisis.]

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A Q&A on the San Bernardino bankruptcy

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Steven Cuevas / KPCC

San Bernardino city council caps a 3-hour budget hearing by grimly approving authorization for Chapter 9 bankruptcy protection. What would bankruptcy mean for the city of more than 200,000?

Last night, the San Bernardino City Council voted to prepare for a bankruptcy filing. If the city of 211,000 does enter Chapter 9, it would follow Stockton and Mammoth Lakes, both of which have turned over their finances to the courts in recent weeks after a new state-mandated mediation process failed to resolve heavy debt burdens and, in Mammoth Lakes' case, a legal judgment that was more than double the city's budget. San Bernardino would also be the second U.S. city of more than 200,000 to enter bankruptcy.

So what would bankruptcy mean for San Bernardino? I've created a Q&A that I'll follow up with some more in-depth reporting on San Bernardino's specific problems.

Q: Can San Bernardino declare bankruptcy right away?

A: It's unclear. A new California law requires municipalities to declare a fiscal emergency — San Bernardino says that it can't make its city payroll, which definitely qualifies — and enter a mediation period before officially filing for Chapter 9. In Stockton's case, this consumed about 90 days but was ultimately unsuccessful. In a July 26 analysis of the city's dire finances, the mediation process was referenced.

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