Getting Ready to Rumblardino

The City Council in San Bernardino, Calif., approved a “pre-pendency” plan outlining some $22 million in spending cuts to help the city reduce its $45.8 million deficit that led it to declare bankruptcy in July. The council retained plans to cut 100 city positions, outlined in the city management’s original plan, but with adjustments. The plan, which will be the basis for San Bernardino’s budget during its bankruptcy case, still leaves a $16.4 million projected deficit for this fiscal year requiring further cuts, according to interim city manager, Ms. Andrea Travis-Miller. During meetings that stretched over a two-day period, ending with a 4-to-2 midnight vote in favor of the plan, some aspects were swapped to get at the $22 million in cuts included in the plan. Council members postponed until next week a proposal by acting fire chief Paul Drasil to cut his department costs by rotating closures of the city’s least-used fire stations. At that time, the council will consider an alternative plan proposed by Councilman Chaz Kelley to cut management positions. The council also directed Ms. Travis-Miller to release a request for proposals for public-private partnership leasing opportunities for the city’s garbage operation and report back in two weeks on the success of the RFP. Bankruptcy documents filed by city staff demonstrate how difficult a challenge the municipality confronts. To add to it, the city has city experienced almost total turnover in its fiscal management staff over the last year. Newly hired staff were brought into the middle of a fiscal and financial mess. Finance director Jason Simpson, named to his position on March 28, discovered a financial quagmire during this year’s budget process—enough so that in court documents, Mr.Simpson explained how San Bernardino issued $90 million in pension obligation bonds in 2005 to reduce unfunded pension liabilities. The bond issuance reduced the city’s annual pension costs by $2 million annually, but that ground gained was lost when the CalPERS pension portfolio took a hit in the financial markets. The city’s annual $3.3 million debt payment on its pension obligation bonds is anticipated to nearly double by fiscal 2012-22. Moreover, notwithstanding the personnel cuts made over the past four years, the city’s expenses continue to increase, even though the city’s revenues have not recovered following the steep declines of the Great Recession and housing bubble burst. On top of the $90 million of outstanding pension debt obligations, the city’s decision to be the successor agency for its now-defunct redevelopment agency means additional debt obligations of around $200 million. City leaders have, so far, offered no proposal to cut the city’s $1.76 million in debt service payments for fiscal 2013, or the $3.4 million of pension obligation bond payments: or as the city’s acting Assistant City Manager puts it: “Adoption of the modified pre-pendency plan does not entirely solve San Bernardino’s cash-flow problem this year or provide the long-term fixes needed to ensure the city’s fiscal health going forward…What the plan does allow the city to do is start making the spending cuts that must be made to bring the city’s spending into line with its expected revenues for this fiscal year.” Creditors objecting to the bankruptcy have until Oct. 24th to file a petition. A status hearing has been scheduled by U.S. Bankruptcy Judge Meredith M. Jury for Nov. 5th in the court’s Central District of California, Riverside Division.