Stockton, CA — There was a time that only small towns and municipalities were susceptible to fall prey to bankruptcy; not those big cities whose population exceeds more than 205,000 or so. But with the economic recession and the bursting of the real estate bubble, even big cities like Stockton whose population is more or less 300,000 fell hard on its knees and was forced to succumb to bankruptcy. After Stockton, Mammoth Lakes followed suit and now San Bernardino joins in as the third California city to seek bankruptcy protection from its creditors.
The City Council of San Bernardino voted to seek Chapter 9 Bankruptcy Protection after failing to to solve the city’s financial woes via fiscal emergencies, concession negotiations and reducing the workforce by 20%. With a budget deficit of $45 million, there isn’t even enough funds to make the August 15 payroll according to Andrea Travis-Miller, interim City Manager.
Unlike Stockton, San Bernardino has not yet gone into mediation with its creditors and the city officials has not stated if they will go through mediation first. But if the law is going to be followed, municipalities are required to undergo mediation first before filing a Chapter 9 reorganization in bankruptcy court, this is based on the law that Governor Jerry Brown implemented this year for municipalities that are facing a financial meltdown.
With an estimated population of 210,000, San Bernardino is the second largest city in the whole of the United States to go belly up and these bankruptcies happened just days apart.
In terms of giving the go ahead with the bankruptcy petition, 4 council members voted yes, two voted no and one abstained. One of the council members, Councilwoman Wendy McCammack had this to say, “This is probably the hardest decision this councilwoman will ever have to make in this chair.”
San Bernardino suffered a major impact when the real estate market collapsed. The city had the third highest foreclosure rate in the entire nation back in May based on the study/survey conducted by RealtyTrac Inc. (a real estate information provider that is based in Irvine) and this maybe due to the high unemployment rate which registered 11.8 percent as compared to the nationwide unemployment rate of 8.2 percent (based on the data provided by the Labor Department).
But there are allegations that certain former city employers provided “falsified” reports to the mayor and the council and never declared the actual status and/or extent of the problem with the fiscal budget. It has been alleged that this cover up has been going on for 16 years.
John Valdivia, the councilman who abstained during the voting had this to say, “The taxpayers of this city have been duped, hoodwinked and misguided for the past several years.” The councilman was not convinced on the information that was presented to the council during the voting and did not want to be entangled into the city’s money mess.
But San Bernardino is unable to do much right now and is unable to dwell on those allegations because they are currently sunk in debt to the tune of $243 million (amount owed includes $48.6 million in pension bonds while per-person debt is around $1,506 which translates into 5.4 percent of personal income).
The scary thing about these bankruptcies is that California is falling apart one city at a time and it would not be impossible to think that the day might come that the entire state might end up declaring bankruptcy. According to Michael Sweet, a bankruptcy expert from the San Francisco law firm Fox Rothschild LLP,”Cities are running out of options.” He further added,”As they see pension contribution obligations and retiree health-care costs going through the roof, revenue is at best stable if not declining.”
California is facing a very uncertain future …