Third Calif. City Declares Bankruptcy

(Newsroom America) -- San Bernardino on Tuesday became the third city in California to declare bankruptcy within the past month, with officials saying the economic situation had become so bad the city likely would not be able to make payroll through the summer.

The vote Tuesday was unexpected but came following a suggestion by the interim city manager, who said the city faces a $46 million shortfall and is out of cash.

"We have an immediate cash flow issue," Andrea Miller told the mayor and seven-member City Council.

Mayor Patrick Morris said the 4-2 decision was a "stain" on the city's reputation but said the only solution was "draconian cuts" to city services, including fire and police departments, the Los Angeles Times reported.

"It means the bills will be paid," Morris said.

The situation was a long time coming, the paper said, and stemmed from several financial over-commitments, including lucrative labor agreements and rising pension costs. The nation's crushing recession didn't help either, analysts say.

In addition, the state capital has dug deeply into redevelopment funds to pay the state's bills; the state is billions in the red itself and looking for ways to reverse the slump.

Gov. Jerry Brown, a Democrat, has proposed new tax increases as one way to close the yawning budget deficit, but Republican critics say California, like many of its cities, is simply over-extended on promised benefits and other line items and that new taxes will only exacerbate the problem.

As for San Bernardino, a city of 209,000, it "is still facing the possibility of insolvency due to a variety of issues including accounting errors, deficit spending, lack of revenue growth and increases in pension and debt costs," according to a financial report detailing the city's fiscal problems.

"The city has reached a breaking point and faces the reality of deficient cash on hand to meet its contractual and debt obligations," it said.

The Times reported that city attorney James Penman told city leaders that budget officials had falsified documents presented to the mayor and council for 13 of the last 16 years, which masked the city's deficit spending.

"For the last 16 years the budget prepared for the council showed the city was in the black," Penman said, without naming those allegedly responsible. "The mayor and the council were not given accurate documents."

© 2012 Newsroom America.

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