San Bernardino Declares Fiscal Emergency, Prepares To File For Bankruptcy

California continues to show signs of how hard the housing crisis has hit it, with San Bernardino likely to become the third city to declare bankruptcy in the state. The city council declared a fiscal emergency, which will allow it to file for bankruptcy protection without having to discuss it with creditors.

It will take around 30 days to make the filing for Chapter 9 protection, said the city attorney. The town of about 210,000 people lies 65 miles east of Los Angeles, and if it completes bankruptcy proceedings, would join Stockton and Mammoth Lakes in doing so.

Compton could be the next city, notes Reuters, as the state’s municipalities struggle to deal with creditors. Compton will run out of cash to make its payroll on Sept. 1, a city official said.

San Berardino has gone through all of its reserves and can’t pay off its deficit spending of nearly $46 million.

“This problem has been coming for a long, long time,” said Council Member Fred Shorett. “It’s here, now.”

The city voted on July 10 to begin the process of moving toward Chapter 9 bankruptcy protection as part of a plan designed to redo its finances.

Financial documents had been falsified in 13 of the past 16 years, said the city attorney, but that evidence has not been made public. A former city manager warned the city in 2010 that it was facing financial ruin, but the  the city’s mayor and its auditing firm say they are unaware of any wrongdoing.

The move has caught the city’s residents by surprise, and many are worrying that declaring bankruptcy will mar San Bernardino’s image. Then there’s the whole problem of paying salaries and providing benefits for city workers.

“This sets a bad example for the people of San Bernardino,” said a representative for San Bernardino’s firefighters union. “It shows the city can make contracts, agreements, and can renege on them by filing for bankruptcy.”

San Bernardino third California city seeking bankruptcy [Reuters]


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