San Bernardino City Council members are scheduled to vote Wednesday evening on declaring a fiscal emergency. That step would allow the city to file a bankruptcy petition within 30 days.
Without the declaration, state law forces the city to wait 60 days while it engages in mediation talks with employee groups, creditors and other stakeholders about how to restructure its debt. The vote comes as the city faces a deficit of more than $45 million, about one-third of its annual budget.
The city's credit cards for gas and daily supplies were cancelled earlier this month after the council voted 4-2 to explore bankruptcy. With just $9 million in cash, at the rate the city has been spending it will not be able to cover its mid-August payroll, Andrea Travis-Miller, acting city manager, said.
For San Bernardino city workers, the vote and impending bankruptcy filing means city employee unions will begin negotiating pay and benefits concessions, layoffs, early retirements and other measures to reduce the financial burden.
Residents are likely to see a cascade of proposals to close city fire stations, get rid of police administrator jobs, privatize other services, sell city assets, make development deals involving city properties like the Carousel Mall and charge more for building fees and other services. There’s even a subscription plan to get residents to pay in advance to use paramedics.
A sore point for San Bernardino officials is figuring out whether the city’s funds were shuffled around and mis-reported by past city budget managers to create a false picture of a balanced budget.
For example, Travis-Miller said in her July 9 report to the council that city staff had claimed they were starting the 2011 fiscal year with $2 million in the general fund, when it was actually $1.1 million in the red. The year prior, city staff claimed to have started 2010 with nearly $1.8 million on hand, when it actually had $410,000.
City Attorney James Penman has alleged in public statements that in 13 of the past 16 years, money was pulled from restricted accounts and placed in general fund accounts to make the city budget appear to be in balance when presented to the City Council.
As in other California cities, the recession has added to San Bernardino’s problems. Property and sales tax revenues have fallen with housing values and consumer spending while the state disbanding of redevelopment agencies also cost the city.
And like other cities, employee contracts and pension costs create obligations the city is having difficulty covering. San Bernardino had placed city employees on a 10 percent pay reduction for the three years ending in June. Restoring their full salaries added $10 million to the city’s projected deficit.
San Bernardino is the third California city this year to seek bankruptcy, following Stockton and Mammoth Lakes.
The city of Vallejo went bankrupt in 2008. It was Vallejo’s bankruptcy and subsequent changes in employee and pension payments that led the state to enact a law requiring cities to enter the 60 day mediation period that San Bernardino wants to bypass.
It might not be the last. The cities of Compton, Lancaster, Montebello and El Monte have been named by financial reporters and municipal observers as facing some of the same risks as San Bernardino.