IE Business Daily

March 28, 2015

The City of San Bernardino is in a real bind regarding its bankruptcy proceedings. San Bernardino has a drop dead date to submit its bankruptcy plan by May 30. Management Partners, the organization brought on board to put that plan together has stated that due to staff failures they are likely to miss Judge Jury’s hard deadline, which will require a request to continue the proceedings, again. Reminder: The city filed for Chapter 9 bankruptcy in August, 2012.

There is a very real danger that Judge Jury may not grant an extension. If this occurs, and the bankruptcy is thrown out, bond holders who are currently being left to hold the financial bag are likely to go back into court and secure default judgments against the city for failure to pay their obligations. Bond holders certainly have nothing to lose by doing so as the current bankruptcy proposal throws them under the bus in favor of the California Public Retirement System (CALPERs) which is paid back in full.

But what does a bankrupt city have to offer as far as assets to seize? Former redevelopment assets are not part of the city budget and are not part of the equation. Those assets have to be liquidated through other means with the bulk of the money going back to the state. These assets total nearly $500 million dollars according to the State Treasurer’s Office.

Nearly every other asset in the city is fully encumbered. San Bernardino City Hall is now worth less than what is owed on the current notes. The city refinanced the building in the 1990’s taking cash out of the loan for some purpose and requires an earthquake retrofit of nearly $20 million that no one knows how to pay for. (The architecture design for City Hall was banned in California after the 1972 Santa Ana Earthquake.)

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