UPDATE 3-San Bernardino 3rd California city to seek bankruptcy

Wed Jul 11, 2012 11:52am EDT

By Jim Christie

SAN FRANCISCO, July 11 (Reuters) - The city council of San Bernardino, California, voted on Tuesday to file for bankruptcy, marking the third time in recent weeks a city in the most populous U.S. state has opted to seek protection from its creditors.

The decision by the leaders of San Bernardino, a city of about 210,000 residents approximately 65 miles (104 km) east of Los Angeles, followed a report by city staff that said the city faced an imminent financial crisis.

The report said the city had exhausted its reserves and projected that spending would exceed revenue by $45 million in the current fiscal year which started on July 1.

According to media reports, the city attorney general James Penman said San Bernardino's city officials had been submitting false accounting documents for 13 of the last 16 years in an effort to hide the real financial situation of the city.

Chapter 9 bankruptcy would give San Bernardino an opportunity to restructure its battered finances, city staff said during a webcast of the city council meeting.

But the council's vote may backfire on San Bernardino in the municipal debt market, and raises concerns about local officials in California potentially looking to bankruptcy protection as an easier solution than making tough decisions about spending cuts and raising revenue, said Dick Larkin, director of credit analysis at muni bond broker-dealer HJ Sims.

"Am I troubled? You bet," said Larkin. "I couldn't believe how quickly this vote happened."

Larkin noted the concerns of San Bernardino's staff about the risk of the city not meeting its payroll in coming months may be eclipsed by concerns it could be frozen out of the muni debt market if it goes through with a bankruptcy filing.

It may take San Bernardino 30 days to complete the actual filing, according to its city attorney.

"I hope California isn't becoming the flashpoint for municipal bankruptcy because if that happens then everyone in the state will be paying for it," Larkin added. "If there are more coming, there will be big penalties to (municipal debt) issuers in California, all the way up the state level."

San Bernardino will join the California communities of Stockton and Mammoth Lakes in bankruptcy court.

Stockton failed after three months of talks with its creditors to obtain concessions to close its $26 million budget gap and the city of nearly 300,000 in the state's Central Valley last month became the most populous U.S. city to file for bankruptcy.

Mammoth Lakes, a ski resort town of about 8,000 residents, last week filed for bankruptcy due to a nearly $43 million legal judgment against it.

Like Stockton, San Bernardino has suffered from the housing crash and high unemployment. According to the report to its city council, the city "has reached a breaking point and faces the reality of deficient cash on hand to meet its contractual and debt obligations due in July 2012."

"The city has declared numerous fiscal emergencies based on fiscal circumstances and has negotiated and imposed concessions of $10 million per year and has reduced the workforce by 20 percent over the past four years," the report said.

"Yet, the city is still facing the possibility of insolvency due to a variety of issues including accounting errors, deficit spending, lack of revenue growth, and increases in pension and debt costs."

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Comments (4)
mikeopinion wrote:
the great thing about american people is they keep voting for the same politicians that ruined their cities .haha fools you get what you deserve the problem is that we the innocent get screwed by these so called patriotic american politicians .

Jul 11, 2012 9:47am EDT  --  Report as abuse
mikeopinion wrote:
american fools wake up

Jul 11, 2012 9:48am EDT  --  Report as abuse
moweddell wrote:
“People who are ignorant of the past are condemned to repeat it”. This quote applies in todays society relating to the philosophy of government control or ownership, and free market interference with tax and spend, and of course, spend then tax, legislation. According to basic accounting principals, if you spend more that you earn you become insolvent, and insolvency leads to or causes bankrutcy. Liberal, progressive, and solialist beliefs creating a “welfare” society does not work. History has already proven these philosophies to be false. Briefly, sooner or later, one runs out of other peoples money to spend. The solution is openly apparant, cite Texas for example, where they have a constitutionally required pay as you go government. Why is this simple solution ignored? Sooner or later the bill has to be paid. Will the spenders lose their shirts, or perhaps lose their cities properties, will investors and bond holders lose their money, and will the citizens have to pick up the tab anyway? To add insult to injury in California, they have now passed a law allowing “santuary” to illegal immigrants, which will make California an even more attractive destination, and will of course result in even more costs and spending. To solve the additioal pending and expanding financial crisis in Calif they advocate even more taxes! With low taxes and no state income tax, I would be willing to quess that the California population will soon begin to move to Texas. Monty Weddell Dallas, TX

Jul 11, 2012 9:51am EDT  --  Report as abuse
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