Bankruptcy

San Bernardino Files for Bankruptcy; Staff Had Been Concealing Deficit Spending for Years

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San Bernardino will be the third California city to file for bankruptcy in less than a month. The city faces a $45 million budget deficit, half of which is unfunded liabilities in retirement, workers' compensation, and general liability accounts. The city drew in $78 million in revenue for the 2011-12 fiscal year.

Was this bomb well-hidden?

San Bernardino City Council voted 4-2 in favor of filing Chapter 9 bankruptcy Tuesday night. The most surprising little detail (and one that seems to be getting lost in all the numbers) came from City Attorney James F. Penman, who told City Council that it had been getting falsified budget numbers for years. Via The Sun (San Bernardino):

Penman also said at the meeting that for 13 of the last 16 years, the council had been given falsified budget documents. Those documents said the city was in the black when, in fact, it had been deficit spending, he said.

That period covers the tenure of multiple city managers and sets of elected officials, but it predates Acting City Manager Andrea Travis-Miller and Finance Director Jason Simpson, whom he said discovered the discrepancy.

Travis-Miller's report (pdf) for City Council showed that city reported starting the 2011-12 fiscal year with $2 million in the general fund when in fact it was already $1 million in the hole. The city has already cut staff by 20 percent and had negotiated a $10 million concession from employees that is about to expire:

Unfortunately, the decline in taxable sales and property values over the last several years has resulted in revenue losses of $10 to $16 million annually. Additionally, previously negotiated compensation reductions will sunset at the conclusion of fiscal year 2011-12 creating an increase in salaries and benefits of $10 million effective July 1, 2012, and increased costs in future years as merit increases resume. Beginning in FY 2012-13, expenditures are projected to exceed revenues by $45 million and absent any changes to improve revenues and reduce expenditures, the City will face increasing annual deficits. The City's financial constraints are compounded with the depletion of all General Fund reserves, which were as high as $19 million in 2001, and failure to fund long-term liabilities.

San Bernardino (population 210,000) joins Stockton and Mammoth Lakes in recent bankruptcy announcements.

In other related California news, a new Field Poll shows state voters have mixed feelings about public employee pension reform.  Significant majorities support raising the retirement age and placing a cap on benefits. A small majority, however, opposed limited collective bargaining rights for public sector workers. But as Reason Foundation Director of Polling Emily Ekins has noted, describing collective bargaining as a "right" in polling questions can significantly alter the results.