In last-resort move, San Bernardino votes to file for bankruptcy

San Bernardino city council caps a 3-hour budget hearing by grimly approving authorization for Chapter 9 bankruptcy protection.
San Bernardino city council caps a 3-hour budget hearing by grimly approving authorization for Chapter 9 bankruptcy protection.
Steven Cuevas / KPCC

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The San Bernardino City Council has voted to file for Chapter 9 bankruptcy protection.

The city is looking at $166-million in salary, benefits and other costs, but it’s got $40 million less in revenue. The only way out, say reluctant city officials, is to seek bankruptcy protection.

San Bernardino city attorney Jim Penman says the city barely made payroll last month. He worries it won't be able to cut paychecks at all next month. No paychecks, no city workforce.

“The city manager has informed us that if the employees are not paid on Aug. 15, on Aug. 16 there will be a mass exodus of city employees,” Penman said.

Penman says that includes hundreds of San Bernardino city workers — everyone from cops to garbage collectors. He says seeking Chapter 9 bankruptcy protection would assure that the city makes payroll. It would also shield San Bernardino’s assets from creditors, and allow the city to undertake a reorganization plan that could take five years to complete.

Mayor Pat Morris and other officials blame the budget crisis on soaring salary and benefit obligations, plunging property tax returns and the loss of an estimated $30 million in state redevelopment funds. That money vanished when the state wiped out redevelopment agencies this year.

“And that was our only true development tool in the toolbox,” says Morris. “So they have really deprived us of the opportunity to renew ourselves and produce jobs.”

City attorney Jim Penman also claims former city staff falsified past budget documents going back 15 years to make it appear that San Bernardino was in the black when it was running deficits. When pressed by reporters, he declined to elaborate.

Council members mulled over but ultimately declined to take any immediate action on deeper cuts to public safety, public works and social programs. A city manager’s report also recommends tax increases.

Many of the people who spoke at last night’s meeting blasted the city council for failing to take more aggressive action sooner to prevent a bankruptcy filing. Retired stockbroker James Smith pleaded with the council to avoid Chapter 9 protection.

“Let’s look at all the alternatives we can before we take that step into bankruptcy,” said Smith.“I realize that other cities have come back from bankruptcy, but we don’t have to take that step.”

City manager Andrea Travis-Miller said even if San Bernardino wiped out every municipal department but police and fire, its budget would still come up short.

The council voted 4 to 2 in favor of filing for Chapter 9 bankruptcy protection with one councilman abstaining. The city is expected to file its petition in federal court within the next 30 days. When it does, San Bernardino will become the third California city to slip into bankruptcy in recent weeks.