San Bernardino, whose government is under criminal investigation, will become the first California community to skip prebankruptcy mediation after the City Council declared an emergency to seek court protection right away.
The council voted 5-2 today to enter Chapter 9 bankruptcy, minutes after passing the declaration of fiscal emergency needed to avoid mandated negotiations with creditors before going to court. City Attorney James Penman said a filing will be made soon, without providing a specific time.
The city of 209,000 residents, confronting a deficit that has reached $45.8 million on a general fund of $129.4 million, likely would run out of money before 60 days have passed, the required mediation period under state law, Andrea Travis-Miller, the interim city manager, said July 16.
"This has been a time of immense crisis," Mayor Patrick Morris said. "The city faces insolvency."
San Bernardino would be the third Golden State community to seek court protection in the past month, following Stockton and Mammoth Lakes. A California law that took effect this year requires municipalities to either seek mediation with creditors including unions and bondholders or declare an emergency before allowing a bankruptcy filing. Mediation didn't prevent the two earlier Chapter 9 petitions.
Morris said his city has depleted its general-fund reserves, lost access to capital markets, has had its credit lines frozen and must pay cash for goods and services. Also, it faces a $3.4 million payment for employee pensions on July 20.
The vote in San Bernardino, about 60 miles (100 kilometers) east of Los Angeles, was postponed two days earlier, even as Travis-Miller and Morris said the municipal coffers were almost bare. Council members said they needed more information about multiple cash accounts, and also agreed to start contract talks with labor unions. Those negotiations haven't produced results.
On July 13, the San Bernardino County Sheriff's Department said a probe of possible criminal activity in City Hall had begun several months earlier. No further details have been provided by investigating agencies, which include the police department and district attorney's office.
Penman said last week that he had turned over "evidence of suspected wrongdoing" involving years of city accounting to outside officials in February. Morris, who took office in 2006, said it was the first time he had heard such allegations.
For years, Travis-Miller said, the city masked the magnitude of its fiscal problems by using the special accounts to supplement the general fund. The manager, who began her job in May, said she knew of no intentional misdeeds related to the money movements.
San Bernardino almost failed to cover its payroll last month after depleting both its general fund and special accounts for workers' compensation, legal judgments, redevelopment and other purposes, Travis-Miller said in a July 12 interview.
The council first voted to seek bankruptcy protection for the city at a July 10 meeting. A filing may take a month or more to prepare, Travis-Miller said at the time.