California City of San Bernardino files for bankruptcy

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The city of San Bernardino filed an emergency petition for Chapter 9 bankruptcy, making a move the City Council approved last month official. According to the interim city manager, city will continue to operate and provide essential services while working through its financial problems.

The city also said there are no immediate plans to reduce or make changes to services. However, officials are continuing to work on a plan that will serve as the city's operational budget during the bankruptcy process. Under that plan, reductions may take place, but there are no firm ideas as to what that may entail, officials said.

The decision to file for bankruptcy was in response to a $45.8 million budget shortfall the city faces this year.

San Bernardino, a city of 210,000 people, began voting on the possibility of bankruptcy July 10. It is now the third California city to declare insolvency this year, joining Stockton and Mammoth Lakes. Read more >>

California Bankruptcies Only the Beginning

San Bernardino became the third California city to file for bankruptcy in the past few weeks ... but it won't be the last. Many municipalities in the Golden State and around the nation are struggling to cover their costs as the economic malaise continues to hurt tax revenue streams, experts said. This will lead to more municipal bankruptcies, which have been rare until now.

"This is not the end. This is the beginning," said Peter Navarro, business professor at University of California, Irvine. "As cities see it can be done and is being done, it will give them the idea to do it." The San Bernardino City Council voted Tuesday to file for Chapter 9 bankruptcy after the interim city manager issued a report that outlined its dire straits. Some $10 million to $16 million in annual revenue has evaporated in recent years as taxable sales dried up and property values plummeted.

Despite negotiating tens of millions of dollars in concessions and reducing its workforce by 20% over the past four years, San Bernardino was facing insolvency and would not have enough cash on hand to meet its obligations, according to the report. "The city has reached a breaking point," the report said, noting the municipality of 211,000 residents was facing a $45 million shortfall. Read more >>