Wednesday, November 28, 2012 – 11:00 a.m.
Is San Bernardino, California on the verge of financial collapse?
It sure looks that way!
The city appears to be unable to pay its bills without affecting its ability to make current payroll. City Attorney James Penman said as much in a story published in the Wednesday edition of The Sun newspaper.
The latest example is news the city has failed to pay money owed to San Bernardino County for landfill fees. Landfill fees are to be paid from restricted funds the city collects separately from residents.
It would appear the city has even spent those funds as well.
Now county supervisors have authorized a lawsuit to seek recovery of $1.5 million in delinquent fees.
Another California city in Chapter 9 municipal bankruptcy, Stockton, recently submitted its pendency plan to the U.S. Bankruptcy Court. A pendency plan is a road map presented to a U.S. Bankruptcy Judge on how the city will balance its budget, pay its outstanding bills, and emerge from bankruptcy protection.
Stockton’s plan was hundreds of pages in length.
The San Bernardino City Council approved its pendency plan Monday night. It’s 12-pages!
What was listed on the 12-pages is an outline of a disaster.
There’s too many assumptions and not enough substance.
For example, the city is arrogant enough to believe voters will automatically approve an increase in its utility users tax from 7.75% to an insane 9.5%. The increase, if approved, will generate an additional $5.25 million annually.
The city also believes residents will stomach a 911 communications fee increase, which will generate $6.7 million annually.
The biggest hole in the plan is pension obligations.
First, the city says it’s going to start making normal payments to the California Public Employees Retirement System (Calpers) next fiscal year. The only problem? The city hasn’t made payments for some time and owes the pension fund roughly $13 million in arrears payments.
The city believes that Calpers will agree to the repayment of its past due balance over 30 years!
A concept that no judge is likely to go along with.
Why? The proposal would set precedent for future bankruptcies. With several other California city’s admittedly on the brink of seeking bankruptcy protection, Calpers can’t support short-changing the fund or its other timely paying members.
More than likely, if the city doesn’t pay up, Calpers will adjust retiree pension payments.
Secondly, the city wants to “defer” repayment of more than $15 million it ripped-off from other restricted accounts, like the aforementioned refuse fund.
However the plan doesn’t say when the city will repay the money and by what means.
And finally, the city wants to “defer” principal and interest payments on $3.4 million in pension obligation bonds owned by investors.
The question here is defer until when? The investors in these unsecured bonds are screwed and they know it.
San Bernardino currently owns no unencumbered assets. Meaning they have hocked everything they own, including City Hall.
I wonder when the lender will foreclose on it?