Mayor Pat Morris reacts to proceedings regarding the city’s finances Monday at a city council meeting in San Bernardino. (Gabriel Luis Acosta/Staff Photographer)

Ryan Hagen, Staff Writer
Posted: 07/16/2012 11:22:59 AM PDT

SAN BERNARDINO – Officials provided further detail Monday on the falsification of budget documents that was first alleged last week, leading City Council members to delay a vote on whether to declare a state of fiscal emergency.

The city must declare a state of fiscal emergency – the inability to pay its bills within 60 days without bankruptcy protection – to sidestep mediation and other steps that would otherwise be required under state law.

But, given new information that some said indicated criminal misconduct and the need to consult with constituents, council members unanimously delayed until 5 p.m. Wednesday decisions on the declaration of fiscal emergency and a resolution formally directing staff to file for Chapter 9 bankruptcy.

City Attorney James F. Penman said at last week’s meeting that 13 of 16 years of budget documents were falsified, then declined to elaborate. Monday, within council chambers again, he and other officials explained what they think happened.

Money was habitually borrowed from restricted funds – areas of the budget that legally can be used only for certain purposes – to meet payroll and other expenses during months when cash was short, then repaid as the revenues flowed in later in the year, Finance Director Jason Simpson said.

At some point, Simpson indicated, those internal loans could not be repaid within a fiscal year.

Under questioning from Councilwoman Wendy McCammack, Simpson – who, like Interim City Manager Andrea Travis-Miller, has only been in office several months – said other cities do not do such borrowing and that there was no indication of this borrowing in the budget or other documents given to the council.

McCammack said she repeatedly asked officials what the balance was in those restricted funds and wasn’t answered.

Penman made the case more explicitly.

“State of California law prohibits cities from engaging in deficit spending. You, the council, were engaging in deficit spending … and the budget did not show that,” he said. “You, without knowing it, were acting on false information, misleading information. In my definition, if you have a document that contains false information, misleading information, you have a false document.”

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