San Bernardino’s Route to Bankruptcy: A long trip, perhaps, but the signposts were visible for years
wo years ago this August, San Bernardino city treasurer David Kennedy issued a dire warning to a politically riven city council. “Budget gimmicks are only going to take us so far,” Kennedy admonished. Absent some drastic changes, he argued, it would soon be impossible to certify that the city could make its monthly payroll. At the same meeting, former city manager Charles McNeely likened year after year of shortsighted budgeting and unsustainable expenditures to the Bill Murray classic Groundhog Day. But the council largely failed to act on those warnings (in fact, McNeely left his post on May 1 of this year, citing the city’s “toxic” political environment). Finally, news broke last week that the city of 213,000, unable to cover its payroll next month, would seek Chapter 9 bankruptcy protection.
San Bernardino has some procedural hurdles to clear before it can declare bankruptcy officially. The city council this week postponed a vote on whether to declare a “fiscal emergency” that would allow it to bypass a state-mandated mediation period. But city creditors have already begun to demand payment in cash.
San Bernardino is, as Mayor Pat Morris calls it, a “blue-collar town”—and currently one with a 16 percent unemployment rate. The U.S. Census Bureau last year designated it the nation’s second-poorest city, behind only decrepit Detroit. Nearly 46 percent of residents receive some form of government assistance. “The reasons for our dilemma are multiple and long enduring,” Morris explained last week, after the council voted 4-2 (with one abstention) to authorize the bankruptcy filing. “They began long before the meltdown of our economy. We’ve been living on the financial edge for a long, long time. But we were unmasked by the meltdown in 2007 when we lost $16 million in sales tax in one year, when we lost 60 percent of our land value and 5,000 homes went into foreclosure.” The city also relied on $6 million annually in redevelopment money—sequestered sales-tax dollars overseen by essentially autonomous and unaccountable agencies—to help balance its budget. But Governor Jerry Brown abolished California’s redevelopment agencies this year in a cost-saving move, leaving San Bernardino further in the red after exhausting much of its reserve fund two years ago. Today the city’s budget deficit is an estimated $45 million.