On Tuesday July 10, 2012 the San Bernardino City Council voted to authorize City Attorney James F. Penman to seek Chapter 9 bankruptcy protection. (File Photo)

SAN BERNARDINO’S FINANCIAL CRISIS

Joe Nelson and Ryan Hagen, Staff Writers
Posted: 07/13/2012 05:33:07 PM PDT

The city has struggled for more than 30 years with a declining job base, dwindling business community and a steadily eroding housing stock.

“It’s a three-decade long experience,” said Mayor Pat Morris, noting, however, that the real blow to the city has come in just the past few years.

“Our current dilemma is not so much what happened way back then,” he said. “It’s what happened since 2007 and 2008.”

On Tuesday, the City Council, fearing the city would not be able to make payroll in August, authorized City Attorney James F. Penman to file for Chapter 9 bankruptcy protection.

City leaders cited immediate cash flow problems stemming from steep declines in tax revenue, skyrocketing pension costs and the state take-away of redevelopment funds.

Penman, addressing the council on Tuesday, said city budgets in 13 of the past 16 years appear to have been falsified, and in a news conference on Wednesday, he said evidence of suspected wrongdoing has been turned over to the appropriate authorities.

The San Bernardino County Sheriff’s Department has acknowledged a joint investigation of the city’s finances is under way with the county District Attorney’s Office and San Bernardino Police Department.

Officials with the FBI and the U.S. Attorney’s Office have declined to comment on whether their agencies are involved.

30 years of struggle

Former San Bernardino Mayor Tom Minor was a city police sergeant in 1977 when San Bernardino was named an All-America City.

The honor is bestowed on 10 cities each year, and in 1977, San Bernardino was the only city west of the Mississippi to be accorded the honor.

“I remember being very proud,” he said in a Friday interview. “I lived in the city, I worked in the city and everyone thought it was a wonderful place to be.”

Indeed, it was San Bernardino’s heyday, when the city was a working class hub, rich in diversity, with the Norton Air Force Base, the Santa Fe Depot and the Kaiser Steel Mill in Fontana providing jobs for a burgeoning middle class.

“You had a city that was really functioning well, and it was really moving forward,” said Inland Empire economist John Husing.

Then came the 1980s, when a series of unfortunate events battered the local economy.

The slide began in 1983, when the Kaiser Steel Mill shut down, idling more than 8,000 workers, said local historian Nick Cataldo.

The opening of the 15 Freeway drew traffic and commerce away from the city, and subsequent closures – the Santa Fe Depot in 1992 and Norton Air Force Base in 1994 – cost tens of thousands more jobs.

As those jobs disappeared, the city’s demographics changed as workers left to seek employment elsewhere and real estate investors swept in to pick up properties on the cheap.

“All of these older people who were working for these companies started taking early retirement, selling their houses and leaving,” said Husing.

“All through those neighborhoods you could feel the shift in the city,” Husing said. “All these neighborhoods that were always middle class working families all of a sudden went rental. Violence started increasing and it became unlivable.”

Morris concurred, noting that the middle class exodus was followed by an influx of low-income families from troubled neighborhoods in Los Angeles who came seeking low-cost accommodations.

“It was around that time that we started getting the gangs from L.A.,” Cataldo said. “Then you start having the high crime and people coming in to take advantage of cheap real estate. You have absentee landlords, and you have this domino effect that hasn’t really stopped.”

By the mid-2000s, crime had become a major concern.

San Bernardino was ranked the 16th most dangerous city in the country in 2004 and 18th most dangerous in 2005, when gang warfare raged on city streets and contributed to the nearly 60 killings reported that year, galvanizing citizens and community leaders who demanded that the city do something, anything, to curb the violence plaguing the city.

Husing, a former San Bernardino resident himself, admits the city’s transition from primarily owner-occupied housing to renter occupied, and the escalating crime that resulted, prompted him to move.

The Great Recession

“It was then and is now a blue-collar city,” Morris said.

And that, he said, is key to understanding San Bernardino.

A decade ago, the city’s finances seemed more than stable, bolstered by the Inland Empire’s surging housing market.

“The economy boomed in the early 2000s because that was an economy based on home building and construction,” Morris said.

Unfortunately, he said, city leaders did not handle the money wisely.

“The City Council during that time – heavily influenced by labor as they always have been here – did not work and maintain a reserve for a rainy day,” he said. “We began the century by literally giving overly generous contracts to our public employees.”

And for Morris, that is a key factor in the past and a major challenge in the future.

“It’s part of this labor city being remarkably generous with our city labor groups and our City Council largely being elected by that same set of unions,” he said. “We are blue collar to the core and union to the core.”

In a city where the median household income is $39,895, more than 200 Police Department employees make more than $100,000 a year, and more than 100 Fire Department employees also earn more than $100,000 a year, according to state data from 2010.

When the housing market collapsed and construction jobs disappeared, unemployment spiked and tax revenue plummeted.

San Bernardino’s unemployment rate, at 15.7 percent, is among the highest in California, and revenues dropped by more than $10million per year, or nearly 10 percent of the city’s general fund.

The city’s general fund balance shrank from $16.1million at the end of 2007-2008 to $2.7million at the end of 2008-2009, according to an audit by Rogers, Anderson, Malody & Scott LLP.

At the end of 2009-2010, the firm reported the general fund’s balance as $410,000.

The city’s cash on hand has been as low as $150,000, said Interim City Manager Andrea Travis-Miller.

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