SAN BERNARDINO – The city filed documents Friday in U.S. Bankruptcy Court in Riverside to convince a judge that it could not provide essential services without bankruptcy protection, a point likely to be heavily contested over the next two months.
Creditors have until Oct. 24 to respond to the city’s eligibility papers and argue that San Bernardino has the ability and responsibility to pay those it owes money.
But the city’s $45.8million deficit – on top of an $18.2million cash deficit in the general fund, as little as $150,000 available citywide some days and an inability to borrow money – has already forced it to stop some payments, according to a declaration by Interim City Manager Andrea Travis-Miller.
“I believed that it was necessary for the city to defer and not pay millions of dollars of financial obligations in order to meet the August payroll and continue to operate and provide essential services to the city’s residents,” said Miller, who after receiving City Council authorization did defer those payments.
The apparent speed of the city’s slide into insolvency can partly be attributed to false reports by city staffers, wrote city Finance Director Jason Simpson.
Analysis done since he took over in May showed the fund balance, reported as $2 million, was in fact $1.2 million in June 2011 and would be negative $10.6 million by June 2012, Simpson said.
But the city’s situation didn’t spring up without any warning, Councilman Rikke Van Johnson said in a Friday interview.
“We had warnings that were shot out in 2007,” he said. “We were told we needed to address our structure or it would catch up to us, and it caught up to us.”
Johnson said he expected many of the city’s creditors to argue the city doesn’t qualify for bankruptcy protection, as has happened in other cities that filed, but he’s confident the city’s case is solid.
“Of course,” he said. “It’s understandable these challenges will come. We’re still bankrupt, whether it’s challenged or not.”
Anyone with claims against the city can challenge the bankruptcy. The list of creditors, also filed for the first time Friday, is 106 pages long.
Attorneys for some of the city’s 20 largest creditors said they were still reviewing the document Friday.
“We’re still evaluating the city’s filing to determine which way to go,” said Corey Glave, the attorney who’s representing the San Bernardino Professional Firefighters.
Without change, the city’s budget deficit is projected to grow by $49million for each of the next five years from rising costs for pensions and other employee benefits, stagnation in revenues, the poor housing market and economy and unfunded liabilities, among other challenges, the filing said.
The city doesn’t have time to solve its problems by asking voters to raise taxes, sell assets – which it hasn’t even had time to calculate the value of – or make cuts fast enough to keep the city safe and pay creditors, according to the main filing.
Filing for Chapter 9 protection requires being a municipality, being authorized to be a debtor, being insolvent, desiring a plan to adjust its debts and either negotiating with creditors or demonstrating that negotiation would be impractical.
The city argues that it doesn’t have time to contact all creditors and has demonstrated its commitment to adjust its debt by the budget reduction plan that will be considered Tuesday, among other things.
Reach Ryan via email or call him at 909-386-3884.
