* Third California city to file for bankruptcy
* Follows Stockton and Mammoth Lakes
* Fears other cities will file for bankruptcy
By Tim Reid
LOS ANGELES, Aug 1 San Bernardino filed for
bankruptcy protection on Wednesday citing more than $1 billion
of debts and making it the third California city to seek
protection from creditors.
The city of about 210,000 residents 65 miles (104 km) east
of Los Angeles declared a fiscal crisis last month after a
report said local government had tapped out its reserves and
projected spending would top revenue by $45 million in the
fiscal year that began on July 1.
The filing, made in the United States Bankruptcy Court,
Central California District, states that the city has "more than
$1 billion" in liabilities, and estimated that it has between
10,001 and 25,000 creditors.
It also states that San Bernardino has estimated assets of
more than $1 billion.
San Bernardino's city council voted on July 24 to adopt an
emergency three-month fiscal plan that would suspend debt
payments, freeze vacant jobs and quit paying into a retiree
health fund while city staff produce a more detailed bankruptcy
"The bankruptcy filing was just to get the protection in
place, to kick the process off," a city spokesperson said.
In late July, San Bernardino reported it had $56 million in
indebtedness payable from its general fund, the main budget,
including payments on a $50 million pension bond. There is an
additional $195 million in unfunded pension obligations, $61
million in unfunded retiree healthcare, and $40 million of
workers compensation, compensated absenses and general
In the past two months, the cities of Stockton and Mammoth
Lakes have also filed for Chapter 9 bankruptcy protection, a
special bankruptcy provision for municipalities.
Stockton, which like San Bernardino has suffered from the
housing crash that was particularly acute in southern
California, filed for bankruptcy in June, becoming the largest
U.S. city to do so.
Other cities in California are also in deep fiscal trouble
and more could file for bankruptcy.
Cities have had the option of filing for bankruptcy since a
law was passed during the Great Depression, but it is a
relatively rare occurrence. Only about 640 such filings have
been made since 1937.
The three California bankruptcy cases will be closely
watched by investors and markets. They will be major test cases
of whether cities in financial trouble can be allowed to renege
on their bond debt and pension obligations.
On July 17, the mayor of Compton, a city outside Los
Angeles, said he had asked state auditors to look into
unspecified "waste, fraud and abuse of public monies." That city
could file for bankruptcy by Sept. 1, its financial officials
In Victorville, California, auditors in January said there
"was substantial doubt about the city's ability to continue as a
In San Bernardino, a recent report by the city attorney said
officials had falsified budget reports to the mayor and council
for 13 of the last 16 years, hiding the scale of the city's
City council members have rejected that allegation, part of
a wider political and legal battle in the city over San
Bernardino's biggest expense - pay and benefits for police and
In a city with 15 percent unemployment, and where tax
revenues have been badly hit by joblessness and the housing
crash, the city estimates that public safety spending accounts
for 73 percent of the general fund benefit.
Pension costs will reach $25 million this year, double the
The San Bernardino's County sheriff's department confirmed
last month that an investigation "related to allegations of
possible criminal activity within departments of the San
Bernardino city government" was underway.
It is not clear if the investigation involves wrongdoing
related to the city's budget.