More CA Cities are Going Belly Up

By The Record
July 15, 2012 12:00 AM
And then there were three. First Stockton. Then Mammoth Lakes. Now San Bernardino. Three California cities. All unable to pay their bills. All in bankruptcy court or about to be there.

Not since 2008, when Vallejo filed, has a California city filed for bankruptcy protection. Now in the span of 15 days three have.

Like Stockton, San Bernardino's woes stem from too much exuberance during the boom years when the state's Inland Empire was on a roll and San Joaquin County became what amounts to a bedroom community for the Bay Area. Big projects. Big pensions. Big pay. (Mammoth Lakes' financial problems stem from a multimillion dollar court judgment the city says it can't pay.)

When the boom ended - as they always do - there were big problems. The river of revenue became a stream, then a creek and now a trickle.

"We have an immediate cash flow issue," San Bernardino Interim City Manager Andrea Miller told Mayor Patrick Morris and the seven-member City Council last week.

At 210,000 residents, San Bernardino is smaller than Stockton, but it faces a bigger deficit. It has a budget shortfall of $45.8 million compared with Stockton's $26 million deficit. San Bernardino has stopped paying some vendors. Stockton stopped making bond payments. San Bernardino officials said they may not be able to make payroll over the next three months. Stockton adopted a "pendency plan," a kind of day-to-day budget so it could pay its bills as bankruptcy plays out.

Likely these California cities will not be the last to take the drastic step of bankruptcy. Cities and counties throughout the nation are facing financial stress. In Scranton, Penn., the mayor has defied a court order and slashed all city workers' pay to the federal minimum wage of $7.25 per hour. He faces a contempt of court charge but said he has no choice. Scranton is out of money.

Since Congress added Chapter 9 to the bankruptcy code in 1937 to allow municipalities to seek protection, about 640 government entities have filed.

We probably will see more the next few months. What's different this time is the size of the cities in trouble. Stockton is the largest city in U.S. history to ever file. San Bernardino is the second largest.

Bankruptcy is an ugly, unpredictable and ultimately expensive choice. But as Stockton determined and San Bernardino decided, it was the only choice left.