Ryan Hagen, Staff Writer
Posted: 11/29/2012 08:07:12 PM PST

Special Section: San Bernardino

SAN BERNARDINO – In a city where nearly every important decision divides officials into two camps, one goal has the passionate support of nearly every policy-maker: Get the court to approve bankruptcy protection.

As the City Council considered a cuts-filled budget plan, the need to satisfy bankruptcy court loomed over the discussions of how to bridge a budget gap generally pegged at $45.8million.

And since the council passed it Monday, the City Attorney’s Office and others have worked nearly nonstop to incorporate the plan into a filing due today at the U.S. Bankruptcy Court in Riverside – arguing, essentially, that San Bernardino deserves to be in bankruptcy court.

Judge Meredith Jury is expected to rule on part of that issue on Dec. 21.

So what’s at stake?

The survival of the city, according to both Mayor Pat Morris and City Attorney James F. Penman.

“We’re talking about the national fiscal cliff,” Morris said. “We’re in free fall over our own fiscal cliff, and the only net we have at the bottom of our own fiscal cliff is Chapter 9. Without it – that’s death.”

The city’s liabilities go far beyond its assets, and it’s unable to pay its bills, Penman said.

Only the legal protection afforded by being in bankruptcy court stops those owed money from taking it out of the city’s bank accounts – leaving far too little to pay employees – and seizing leased items, including vehicles and dispatch equipment for the police and fire departments, Penman said.

“Copiers, fax machines, all those things necessary for running the office, most of our city vehicles – we don’t own them. Most of them are leased,” Penman said. “That would take several weeks to accomplish. Before that, they’ll get writs to attack the city’s bank accounts, and that’ll finish us.”

None of the few California cities to file for bankruptcy have been found ineligible, but that’s hardly a guarantee, Morris said.

Of the two larger cities to file in recent years, Vallejo spent months and millions of dollars before convincing a judge that it qualified for bankruptcy protection, and Stockton is also battling employee unions who say it shouldn’t qualify.

Two creditors have filed what Jury called serious challenges to San Bernardino’s eligibility. The city will respond in the document due today.

Its largest creditor, the California Public Employee Retirement System – which San Bernardino owes $143 million – seemed to accept that the city is in some financial distress in its objection filed Oct. 24.

“The city appears to be operating postpetition at a substantial deficit and has so far been unable to produce a budget that covers its ongoing operating expenses, let alone allows it to pay any prepetition claims,” wrote CalPERS attorneys Michael Gearin and Michael Lubic.

But they say in the same document that it’s impossible to determine whether the city meets the bankruptcy eligibility requirements because it hadn’t provided reliable financial information or – until Monday – a plan for how it would adjust its debts.

And a day after the council passed its pendency plan, setting out projected spending during the bankruptcy proceedings, CalPERS’ attorneys asked Jury to lift a stay that prevents them from suing the city in bankruptcy court for pension payments San Bernardino hasn’t made and doesn’t plan to until next fiscal year.

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