San Bernardino, California, Weighs Chapter 9 Bankruptcy; That Seals
the Fate
Location: Sonoma, CA
Date: 2012-07-12
When you see headlines like this:
San Bernardino, California, Weighs Chapter 9 Bankruptcy, you
know 100% without a doubt the city is bankrupt, and the only
question pertains to the filing.
From the Bloomberg headline story ....
San Bernardino may become the third California city in two weeks
to file for municipal bankruptcy protection, as it struggles
with declining tax revenue, growing employee costs and ill-timed
public-works projects.
The City Council is to consider authorizing the city attorney to
file a Chapter 9 petition at a meeting late today, said
Gwendolyn Waters, a spokeswoman. A decision was possible
tonight, though unlikely, she said.
A San Bernardino bankruptcy would follow Stockton, a community
of 292,000 east of San Francisco, which on June 28 became the
biggest U.S. city to file for bankruptcy. Mammoth Lakes, a
mountain resort of 8,200, filed for protection from creditors on
July 3 saying it can’t afford to pay a $43 million judgment,
more than twice its general-fund spending for the year.
San Bernardino, a city of 209,000 east of Los Angeles, faces a
$45 million deficit this fiscal year, according to a June 26
budget analysis posted on its website. The city has declared
fiscal emergencies, negotiated for concessions from employees
and reduced its workforce by 20 percent in four years, according
to the report.
The city is facing insolvency because of accounting errors,
deficit spending, pension and debt costs, and lack of revenue
growth, according to the report.
Few Options
“Cities are running out of options,” Michael Sweet, a partner
specializing in bankruptcy at the San Francisco office of law
firm Fox Rothschild LLP, said today in a telephone interview.
“As they see pension contribution obligations and retiree
health-care costs going through the roof, revenue is at best
stable if not declining.”
“The city’s reserves and discretionary funds have been depleted,
and the city faces insolvency,” San Bernardino Interim City
Manager Andrea Travis-Miller and Finance Director Jason Simpson
wrote in a June 26 memo to the council. “Simply put, the city
must now take substantial action to reduce its spending and
increase revenues.”
According to its financial statements, the city and its agencies
held $243 million of outstanding debt, including $48.6 million
of taxable pension-obligation bonds outstanding. The city’s debt
per person was $1,506 or $5.37 percent of personal income. San
Bernardino had $200 million of outstanding general- obligation
bonds, according to the statement.
Untenable Union Wages and Pension Benefits to Blame
Once again, deficit spending, union wages, and soaring pension
obligations are at the heart of the matter.
Los Angeles, Oakland, San Diego, and numerous other cities face the
same fate. Just give it time.
Excellent News
Some people will look at this as bad news. However, this is
excellent news.
The only solution is to stick it to uncompromising public unions in
bankruptcy court. Bankruptcy is the way forward.
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