City bankruptcy new trend in California
California’s estimated budget deficit may increase another $1 billion to $17 billion this year, an accounting nightmare that is mirrored by many of the state’s cities and local governments.
is poised to join Stockton and Mammoth Lakes as officially bankrupt California cities. Tuesday, Stockton and Mammoth Lakes officials filed for bankruptcy protection less than a month ago, and together with San Bernardino suggest a troubling trend in the once wealthy state.
San Bernardino City Council voted to move forward with bankruptcy proceedings Tuesday evening after city leaders decided their financial situation was so desperate that the city couldn’t cover its payroll. The interim city manager told council members the city faced a $46-million deficit and had no cash to cover such spending.
"We have an immediate cash-flow issue," Andrea Miller told the mayor and seven-member City Council. Pending bankruptcy for the city of 209,000 raises concerns about the fiscal stability of other California cities. Amid declining tax bases, bloated city budgets and an extended economic slump, many local governments are slashing jobs and services.
Many city budget deficits are tied to big-spending in years past. For example, Stockton
, a Central Valley agricultural hub, tried to remake itself during the last decade as bedroom community for San Francisco Bay Area residents. The city spent tens of millions of dollars on a marina, a high-rise hotel and a promenade, all economic failures.
During the building boom new residential developments sprang in Stockton suburbs; today, many of them sit empty, their mortgages mired in foreclosure. Stockton has one of the highest foreclosure rates in the country.
As Stockton increased spending, tax collection plummeted and the city lacked the funds to pay its debts. Even the government labor contracts have been declared unsustainable. Last month the Stockton City Council voted to stop bond payments and gut employee health and retirement benefits in order to get through the year on a bare bones budget.
"This is what we must do to get our fiscal house in order and protect the safety and welfare of our citizens," Mayor Ann Johnston said in a statement when the city filed its bankruptcy paperwork.
Days later, the High Sierra town of Mammoth Lakes
— population: 7,700 — also filed for bankruptcy protection. Mammoth Lakes filed for bankruptcy after losing a court judgment in a dispute with a developer. The town reportedly could not pay a $43-million breach-of-contract judgment brought by the developer. The judgment is said to be several times the size of Mammoth Lakes' annual operating budget.
The town signed an agreement with Mammoth Lakes Land Acquisition in 1997 to make improvements to a nearby airport's fixed-base operations. In return, the company would get rights to develop a large hotel project at the airport and an option to buy the land.
However in 2007 the town changed its priorities and refused to move forward with the hotel project; the developer filed suit and won.
In San Bernardino, Mayor Patrick Morris said Wednesday’s 4-2 vote was a "stain" on the city, but insisted only other option was "draconian cuts" to all city services, including the police and fire departments.
San Bernardino’s financial situation was exacerbated by escalating pension costs, lucrative labor agreements, Sacramento's raid on redevelopment funds and a city reserve that is tapped out, officials said.