San Bernardino could end up in bankruptcy again, Moody's warns

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The influential credit rating agency Moody’s Investor Service released a highly critical report Wednesday on San Bernardino’s finances, warning that just as the beleaguered city prepares to finally emerge from four years of Chapter 9 protection, it could be setting itself up for another bankruptcy. 

"The [court-approved] plan calls for San Bernardino to leave bankruptcy with increased revenues and an improved balance sheet, but the city will retain significant unfunded and rapidly rising pension obligations," the report warns.

"Additionally, it will face operational challenges associated with deferred maintenance and potential service shortfalls," it says, "which, added to the pension difficulties, increase the probability of continued financial distress and possibly even a return to bankruptcy."

San Bernardino City Manager Mark Scott mostly shrugged off the report, saying the city is well aware of its problems and has confidence in the restructuring plan.

“It’s kind of a summary of old news," said Scott. "We wouldn’t have tried to get out of bankruptcy if we didn’t think we had a plan that keeps us out, nor would the judge have approved to let us out of bankruptcy." 

A federal judge approved the city's exit from bankruptcy in January, a process that is expected to be completed in the coming weeks. 

Asked whether the report would make it harder for the city to borrow, Scott laughed.

"I don’t think it could make any harder than we've already got," he said.

The Moody's report says San Bernardino's finances put its aging infrastructure at risk. The city has $180 million in deferred street repairs and $130 million in deferred facility repairs and improvements, and it has failed to inspect 80 percent of its sewer system. 

"Cities typically rely on financing large capital needs with debt, but this option may no longer exist for San Bernardino," the report says.  "Even if San Bernardino is able to stabilize its finances, the city will still face a material infrastructure challenge." (The city did issue $68 million in water and sewer bonds during bankruptcy.) 

"Maybe it’s we’re more used to this that [the Moody's report is] not that startling to us," said Scott.

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