San Bernardino, Calif., postpones fiscal emergency decision

SAN BERNARDINO, California Tue Jul 17, 2012 12:29am EDT

A boarded-up storefront on Fourth Street in San Bernardino July 11, 2012. REUTERS/Alex Gallardo

A boarded-up storefront on Fourth Street in San Bernardino July 11, 2012.

Credit: Reuters/Alex Gallardo

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SAN BERNARDINO, California (Reuters) - The city council of San Bernardino, California, voted on Monday to postpone until Wednesday a decision on whether to declare a fiscal emergency as a step toward a bankruptcy filing.

The council voted on July 10 to seek Chapter 9 bankruptcy protection as part of a plan to overhaul San Bernardino's finances after the city of about 210,000 people located 65 miles east of Los Angeles burned through its reserves and ran out of other ways to pay for its longstanding deficit spending.

City officials last week said a bankruptcy filing could take up to 30 days.

A state law approved after Vallejo, California, declared bankruptcy in 2008 requires financially troubled cities to enter into talks with creditors to try to avert bankruptcy. But the law also allows cities to skip talks and move directly toward a bankruptcy filing by declaring a fiscal emergency and that they are unable to pay their obligations within 60 days.

A financial report for the city council dated July 9 that precipitated the bankruptcy vote projects San Bernardino will have about $120 million in general fund revenue for the fiscal year that began on July 1.

That leaves the city about $45 million short for its expenses. San Bernardino's revenue peaked at about $140 million in 2007 before its economy suffered a hard blow from the housing crash, which sent local foreclosure soaring while slashing revenue from property taxes.

San Bernardino's revenue from sales taxes have also dropped and its overall revenue outlook is bleak.

While the council postponed its decision on declaring a fiscal emergency, it voted to begin formal talks with city employees.

San Bernardino's labor costs are projected to rise by $10 million annually in the coming years as concessions expire and contributions to the state pension fund increase.

PUBLIC SAFETY SPENDING

Much of the discussion about the city's financial predicament has focused on its public safety spending, which accounts for 73 percent of its general fund.

San Bernardino's charter pegs police and firefighter pay to wages offered by comparably sized California cities, creating a heavy financial burden for the blue-collar city which has an unemployment rate of 15 percent.

Claims of fraud have also accompanied San Bernardino's financial troubles.

The San Bernardino County Sheriff's Department confirmed last week that authorities had launched an investigation "related to allegations of possible criminal activity within departments of the San Bernardino city government.

San Bernardino's finance director told the city council at Monday's meeting that it may have not been aware of borrowing from restricted funds, which are set aside for specific uses, to help bolster the city's general fund.

The issue prompted the council to delay the vote on a fiscal emergency declaration until Wednesday to allow further review.

The city attorney, who last week said falsified financial documents may have played a role in steering the city into its current financial straits, told the council it may have made decisions about the city's finances on misleading, false and incorrect information.

San Bernardino's mayor, a long-time auditor and a former city manager who resigned earlier this year have denied wrongdoing in the city's bookkeeping.

Former city council member Tobin Brinker told Reuters the council should look into how money from restricted funds were used, but he said the issue may not amount to much and may prove to be another shot in the city's notorious political feuds.

San Bernardino is the third city in the most populous U.S. state to seek bankruptcy protection in the last two months after Stockton and the ski resort city of Mammoth Lakes filed for Chapter 9.

Stockton, a city of 300,000 residents in California's Central Valley, is the most populous U.S. city to file for bankruptcy.

(Reporting by Tori Richards; writing by Jim Christie; editing by Mohammad Zargham)

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