San Bernardino Mayor Pat Morris ponders a question regarding the city s looming bankruptcy outside City Hall on Wednesday. The City Council voted Tuesday night to authorize a bankruptcy filing. Morris called the crisis a stain on our city. (Rick Sforza Staff Photographer)


Ryan Hagen, Staff Writer
Posted: 07/11/2012 09:12:47 PM PDT
Updated: 07/12/2012 02:54:15 AM PDT

SAN BERNARDINO — A day after deciding to file for bankruptcy, the city officials said Wednesday they’re still trying to form an answer to the question on the lips of many employees and residents: What does this mean for me?

But they all agreed the news wasn’t good.

“I said it last night and I’ll say it again: It’s a stain on our city,” Mayor Pat Morris said as he did a circuit of interviews with national reporters who wondered how things could have gotten so bad and what it means for others in the state and nation.

On that point, City Attorney James F. Penman – who argued in favor of moving forward with bankruptcy at Tuesday’s meeting making that decision – agreed.

“As a resident, I’m ticked,” he said. “It’s a disaster for… the city. However, it would’ve been an ongoing disaster if the city continued (without being able to pay bills).”

The city is in worse shape than Stockton, which last month became the largest U.S. city to file for bankruptcy, he said, based on what bankruptcy analysts told him.

While the city’s structural deficit – $45 million with no reserve – isn’t as bad, he said, the cash flow problem trumps Stockton’s.

San Bernardino has had as little as $150,000 in cash on hand on one day, said Interim City Manager Travis-Miller. That amount fluctuates, but she predicted that the city would be unable to make its Aug. 15 payroll without serious cuts.

Those cuts would need to be made before the filing of bankruptcy protection, with some coming administratively and others requiring City Council approval at the meeting after Monday’s.

The City Council will meet Monday to vote on a state of fiscal emergency – a declaration that it can’t pay its obligations for the next 60 days – and consider a Chapter 9 filing, Penman said. Council members voted 4-2 with one abstention Tuesday to authorize Penman to file for bankruptcy.

Morris has blamed the fiscal crisis largely on the dissolution of
California redevelopment agencies – which he said cost the city $30 million it had gotten in reimbursements for services to the Economic Development Agency – and on rising salaries and benefits for workers.

Asked whether bankruptcy would help solve those problems, Morris paused.

“That’s the question,” he said. “What we’re doing, the bankruptcy, is the easy part.”

The hard part, he said, is getting City Council members – some of whom “are elected by the unions,” he said, based on large contributions from police and fire unions to their campaigns – to agree to lower compensation.

Filing for Chapter 9 may not help with employee costs, said Karol K. Denniston, a partner at Schiff Hardin LLP in San Francisco and one of the people who drafted AB 506, a law passed in 2011 to govern bankruptcies in California.

Officials can file a motion to reject their collective bargaining agreements as part of the reorganization, but there’s no guarantee of what comes next, according to Denniston.

“The tragic part is they can reject those agreements, but the city still has to provide health, safety and welfare, which means the minute you reject them you’re right back at the bargaining table because you need police and fire,” she said. “…The lesson we’re going to learn from San Bernardino is you’re going to want to start earlier.”

Negotiations with unions and creditors should have started as soon as the city saw severe financial problems on the horizon, she said.

But Councilman Fred Shorett said he and other leaders have been calling for negotiations for years, but have been blocked by union-backed council members.

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