San Bernardino Owes More Than $1 Billion

Officials sought an exemption from a rule that would have required them to wait 60 days and attempt to negotiate with employees and others to whom money is owed.

By Sharon Bernstein
|  Thursday, Aug 2, 2012  |  Updated 3:19 PM EDT
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San Bernardino Owes More Than $1 Billion

AP

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The bankrupt city of San Bernardino, Calif., owes more than $1 billion to a group of creditors who are as-yet unnamed, but likely to include city employees, vendors and others who do business with the Inland Empire city, court documents show.

MORE: San Bernardino Financial Woes Loomed for Years | Residents plead with city not to file for bankruptcy.

Details are sparse in the city's rushed filing for protection under Chapter 9 of the U.S. bankruptcy code. Still, some basic information can be gleaned about the city’s condition.

Last month, San Bernardino’s finance chief and interim city manager told elected officials in the city of 205,000 that there was not enough money in the municipality’s coffers to pay employees and meet other financial obligations.

Within days, the city had declared a fiscal emergency, a first step toward an expedited bankruptcy filing. Although city officials later said they were surprised by the depth of their financial problems, documents showed that the San Bernardino had been teetering on the edge of financial ruin for years.

The city’s bankruptcy filing was made very quickly, as officials sought an exemption from a state law requiring municipalities to wait 60 days before submitting a case.

Wednesday's filing did not include such details as a list of people and companies to whom the city owes money.

That information, which will be added to the case later, is important, because once a person, business, or government agency has declared bankruptcy, it is protected from its creditors until a judge approves a payment plan.

Such plans can be contentious, because often the bankruptcy court rules that the debtor does not have to pay all of its obligations.

As part of the filing, however, the city was required to state how much money was owed. Officials checked a box that said, “over $1 billion.” It listed its assets as over $1 billion as well.

The documents also included a copy of a resolution passed by the City Council authorizing its attorneys to file for municipal bankruptcy in federal court.

“Without the protections afforded by Chapter 9 of the bankruptcy code, the city will be unable to meet its payroll, which would endanger the health, safety and welfare of the citizens of the city,” the resolution said.

With its filing in U.S. Bankruptcy Court for the Central District of California, San Bernardino became the third municipality in the Golden State to seek protection from creditors since June 28, when Stockton told the courts it was broke.

Two weeks later, Mammoth Lakes declared bankruptcy also, citing a court judgement that it could not pay.

Several other cities have said they are having financial trouble, but have not yet taken the step of declaring bankruptcy. The city of Vallejo emerged from bankruptcy earlier this year.

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