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Only $150K In the Bank: Third California City in Two Weeks Opts for Bankruptcy


"The city is currently facing a budget shortfall of $45.8 million"

(Photo: Getty Images)

(The Blaze/AP) -- As recently as last month, no city in California had opted for bankruptcy since 2008, and no U.S. city of more than 200,000 people had ever chosen that route.

The past two weeks have changed that, as the fiscal struggles faced by many American cities became too much for some to bear. San Bernardino became the third California city in that small span to choose Chapter 9 bankruptcy protection with a City Council vote on Tuesday night.

The Southern California city of about 210,000 people will also become the second largest in the nation ever to file for bankruptcy. Stockton, the Northern California city of nearly 300,000, became the biggest when it filed for Chapter 9 on June 28. The much smaller city of Mammoth Lakes voted for bankruptcy July 3.

San Bernardino's City Council directed the city attorney to make the move during a meeting in which administrators explained the dire fiscal circumstances and urged them to choose the bankruptcy option.

According to the Wall Street Journal, the city had only $150,000 in its bank accounts days before the decision was made to file for bankruptcy.

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

City Atty. James Penman warned the city would "shut down," including public safety agencies, if it didn't have enough money to pay its employees.

"People are not going to work if they do not get paid,'' Penman noted.

Miller said the city is currently facing a budget shortfall of $45.8 million. It has already stopped paying some vendors, and may not be able to make payroll over the next three months.

At the meeting, the city attorney said budget officials had presented falsified budget documents to the City Council for 13 of the last 16 years, the newspaper reported.

Four council members voted for the authorization, two opposed it, and one abstained.

"This is probably the hardest decision this councilwoman will ever have to make in this chair," Councilwoman Wendy McCammack said, according to the San Bernardino Sun.

The councilman who abstained from voting, John Valdivia, said he did not trust the information presented at the meeting, and having only served since March believed he should not be held responsible for the money mess.

"The taxpayers of this city have been duped, hoodwinked and misguided for the past several years," Valdivia said, according to the Sun.

It was not immediately clear when the city planned to file.

Sixty miles east of Los Angeles, San Bernardino is in a region that soared economically during the housing boom, and suffered accordingly after the crash. It joins a number of other cities and counties across the nation that have plunged into financial crisis as the recession made it tough to cover rising costs involving payroll, pensions, bondholders and vendors.

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

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