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Bankrupt San Bernardino Fails to Pass Emergency Budget

Wednesday, 05 Sep 2012 04:27 PM


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The bankrupt California city of San Bernardino failed to pass an emergency budget plan in the early hours of Wednesday morning after an acrimonious fight over plans to sack firefighters.

The city of about 210,000, some 65 miles east of Los Angeles, filed for bankruptcy on Aug. 1, joining the Bay Area city of Stockton as a test case for whether financially troubled municipalities can shed bond payments and possibly pension obligations via bankruptcy court.

San Bernardino, the third California city to seek bankruptcy protection, faces a $45.8 million budget deficit for the current fiscal year, plus an $18 million deficit from the previous year, according to city managers.

A pre-bankruptcy budget by city managers, which would see $22.4 million in cuts and eliminate 100 full-time jobs, sparked heated exchanges at a City Council meeting that stretched beyond midnight.

The council is expected to reconvene on Wednesday afternoon.

As part of the plan, which demands slashing the city's budget by 30 percent, 20 firefighter positions would be eliminated and three of its four fire stations would be temporarily closed, on a rolling basis, 10 days a month.

According to the city's bankruptcy filing, the greatest debt burden facing San Bernardino is its soaring pension costs, especially retirement obligations to the its firefighters and police.

The city says its unfunded pension obligations are $143.3 million. The California Public Employees' Retirement System (Calpers) puts the figure at $319.5 million.

It was the planned cuts to the firefighters that left the emergency budget - which is to serve as the basis of the city's operating budget through the bankruptcy proceedings - in limbo.

Chas Kelley, a council member, said of the firefighter proposals: "I am not going to play Russian roulette with the lives of these residents."

Kelley proposed an alternative plan for cuts inside the fire department, one approved by the firefighters' union. That plan passed by 4-3 vote, but Mayor Patrick Morris vetoed it.

Morris called Kelley's proposal "slavish adoption of a union proposal without analysis," and "loyalty to special interest groups that trumps the whole idea of a city that acts intelligently to make public policy."

San Bernardino followed the California cities of Stockton and Mammoth Lakes in filing for bankruptcy protection. The three cases are being closely watched by markets as they will be test cases for how far cities can reduce or eliminate their obligations to bondholders and pension funds.

Stockton and San Bernardino, in particular, are also shaping up to be showdowns between Wall Street bondholders and Calpers over who will get preferential treatment as creditors.


© 2014 Thomson/Reuters. All rights reserved.

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