Third
California city goes bankrupt
With
more than $1 billion in debt, California’s San Bernardino filed for
bankruptcy on Wednesday. The city, which is the third in the state to
go bankrupt in five weeks, blames its economic catastrophe on the
2007 housing crash
26
April, 2012
The
bankruptcy filing states that the city has between 10,001 and 25,000
creditors and owes “more than $1 billion.” It disclosed a 30
percent shortfall in the city’s budget – $46 million.
San
Bernardino is California’s third city to file for bankruptcy
protection in the past two months, following Stockton and Mammoth
Lakes.
The
filings come at a time when California cities are struggling with
rising pension costs and growing unemployment. San Bernardino
currently has $195 in unfunded pension obligations, $61 million in
unfunded retiree healthcare and $40 million of workers compensation.
“Just
by looking around you can see that the city is going down,” small
business owner Marcus Nelson told the Associated Press. “On this
block there’s only three business – [mine] and two other pawn
shops.”
In
the mid-2000’s, San Bernardino took out $190 million in bonds and
loans to pay for projects, including a new arena, new parking garages
and a new city hall.
But
budget problems hit hard in 2007. The city of about 210,000 residents
suffered from the collapse of the housing market, and had the second
highest foreclosure rate in the US.
“We
lost in the course of a single year 16 million dollars in sales
taxes. 60 percent of our property values were lost. When you
understand that a city is largely financed by sales and property
taxes – when you lose your economic base in that kind of a free
fall – you’re in trouble,” the city’s mayor, Patrick Morris,
told AP.
But
the extent of the city’s debt was largely unknown until recently. A
recent report by a city attorney claimed officials had falsified
budget reports to the mayor and council for the past 13 years, in an
attempt to cover up the scale of the city’s liabilities.
San
Bernardino may not be the last California city to go bankrupt.
Bankruptcy filings are usually a rare occurrence, with only 640
having been made since the Great Depression.
But
other cities in the state are also in deep fiscal trouble. In July,
the mayor of Compton, a small city outside of Los Angeles, asked
state auditors to investigate unspecified “waste, fraud and abuse
of public monies.” Financial officials predict it could file for
bankruptcy within the next month.
Auditors
are also worried that Victorville, California could go down the same
route.
And
in San Bernardino, a city where 75 percent of its budget goes to
public safety agencies, the bankruptcy will lead to widespread
layoffs or cuts in employee compensation, affecting the police and
fire departments.
While
unemployment is on the rise, San Bernardino is struggling to rebuild
itself as it joins a trend of California cities declaring bankruptcy.
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