San Bernardino facing bankruptcy

If this happens, SB would be the second city in California to do so this year.


San Bernardino facing bankruptcy if deep cuts aren't made

Ryan Hagen, Staff Writer
Posted: 07/07/2012 08:13:10 PM PDT

SAN BERNARDINO - The city must immediately make substantial cuts to its budget or prepare for bankruptcy, the interim city manager and the finance director have warned the City Council.
Spending is projected to be $45 million more than revenues for the fiscal year that began July 1, and the city's reserve fund is empty, Interim City Manager Andrea Travis-Miller and Finance Director Jason Simpson wrote in a budget plan sent to the mayor and council on June 26.

More than 250 workers - 20 percent of the city's work force - have been laid off and employee unions have given $10 million in concessions over the past four years, they noted in the budget plan.

"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," they wrote. "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."

Armed with that analysis, officials and council members will discuss personnel issues in closed session on Monday. They will also meet in public on Tuesday and Wednesday to consider cuts and potential taxes outlined in the budget plan.

"It is serious business, and it has been for some time plaguing this city," Mayor Pat Morris said of the deficit spending, although he expects the city to meet its July payroll. "If we don't

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make the required cuts, (bankruptcy) is a very real possibility."
Elected officials disagree, though, on the source of the problem and how to solve it.

Morris said the city has been hit by many tough situations recently: steep tax declines; the expiration on June 30 of agreements that had most city employees give back 10 percent of their salary; and the state abolition of redevelopment agencies, which he said was a $30 million-per-year hit to San Bernardino.

But he said the biggest area the council needed to focus on was city employees.

"We are a city with very strong unions - as an older city that is often the case - and newer cities largely contract out many of the services we do in-house," he said. "This city needs to represent the constituents - not the employees, but those who live here. Employees are very important to us, but our generosity is legendary."

Pensions are out of control, he said, saying that's precisely what drove Stockton to bankruptcy in June and why other cities have voted to rein in retirements and benefits.

Indeed, personnel costs account for about 75percent of total spending in the city's general fund, with about 78percent of that being public safety employees, according to the budget plan.

The city's retirement spending has gone from $1 million in Fiscal Year 2006-2007 - 9percent of the general fund - to $1.9 million, or 13percent of the fund, in 2011-12.

By 2015-16, city staff projects that retirement obligations will take 15 percent of the budget.

But some council members said the problem has been caused by unnecessary spending on Morris-championed projects.

"I have voted against every budget for the last three years because not enough nonessentials were (cut from) the budget," said Councilwoman Wendy McCammack. "The nonessentials list has accumulated for six years under this mayor."

She said examples include a rapid-transit bus line that's being constructed and the Regal Theater project, both of which received funding from the city Economic Development Agency, Operation Phoenix's efforts to reduce crime with intervention programs, and remodeling of some City Hall offices.

"The cutbacks in the (budget) stabilization plan may be necessary on paper but not until all the nonessentials are removed or until a court intervenes," McCammack said, declining to elaborate.

McCammack also said she was troubled by the budget report's note that the general fund's starting balance has been erroneously stated for the past two fiscal years.

That reached a peak several months ago, when then-City Manager Charles McNeely said the fund had a balance of $2 million but the audited fund balance on July 1 turned out to be in the red by $1.2 million.

Councilwoman Virginia Marquez said she would be open to all the suggestions in the 45-page budget stabilization plan.

"These will be the most difficult sessions I will be involved in in all my two years (on the council), but I don't want to end up like Stockton," she said, "so I will look at all options."

The budget plan suggests some cutbacks, reorganizing some departments and new revenue sources, but also says the suggestions aren't meant to be a detailed implementation plan.

"Rather," it says, "the report is drafted to validate the immediate need to take action and to provide staff with policy direction necessary to develop a specific cost reduction strategy to bring revenues in line with expenses in an attempt to avoid insolvency if at all possible."