Ca. city's fiscal emergency vote speeds bankruptcy

[July 19, 2012]  SAN BERNARDINO, Calif. (AP) -- San Bernardino declared a fiscal emergency Wednesday night, allowing the city to avoid a lengthy mediation process and head straight to federal bankruptcy court.

The declaration comes after the city announced last week that it would seek Chapter 9 protection, making it the third California city in recent weeks to make the rare move.

The City Council voted 5-2 to declare the emergency and file for bankruptcy protection amid a dire cash crunch that has officials worried San Bernardino can't meet payroll in August.

The vote was followed by another authorizing the city attorney to file for bankruptcy, but it was not clear when the planned filing would come.

Councilmen Chas Kelley and John Valdivia dissented on both votes.

Councilman Fred Shorett, who voted against bankruptcy last week, reversed his position Wednesday night and approved both moves.

"The horse is out of the barn -- the whole world knows we're insolvent," Shorett said, according to the San Bernardino Sun. "I will be supporting going forward with Chapter 9 and fiscal emergency."

The vote could make the city of 210,000 people the third in California to seek bankruptcy protection since last month, following Stockton and Mammoth Lakes.

The city is facing a $45.8 million budget shortfall this year.

Last week's announcement of the bankruptcy plan has further stressed San Bernardino's finances by prompting a dozen employees to put in for retirement with hopes of cashing out accrued vacation and sick time, and it has spurred vendors to demand cash instead of credit, said Gwendolyn Waters, a spokeswoman for the city manager's office.

The debate over bankruptcy in San Bernardino has also raised questions about the city's financial management. Last week, City Attorney James Penman told the public that 13 of the last 16 budgets presented to the city council had been falsified, masking the city's deficit. The finance director, who is new to the job, said officials had borrowed cash from restricted funds to cover payments, and eventually ran out of money to pay the funds back.

Officials say the housing crisis -- which walloped property and sales tax revenues -- and the loss of state redevelopment funds took a toll on the city's budget. San Bernardino is located about 60 miles east of Los Angeles.

[Associated Press]

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