When you see headlines like this: San Bernardino, California, Weighs Chapter 9 Bankruptcy, you know 100% without a doubt the city is bankrupt, and the only question pertains to the filing.

From the Bloomberg headline story ….

San Bernardino may become the third California city in two weeks to file for municipal bankruptcy protection, as it struggles with declining tax revenue, growing employee costs and ill-timed public-works projects.

The City Council is to consider authorizing the city attorney to file a Chapter 9 petition at a meeting late today, said Gwendolyn Waters, a spokeswoman. A decision was possible tonight, though unlikely, she said.

A San Bernardino bankruptcy would follow Stockton, a community of 292,000 east of San Francisco, which on June 28 became the biggest U.S. city to file for bankruptcy. Mammoth Lakes, a mountain resort of 8,200, filed for protection from creditors on July 3 saying it can’t afford to pay a $43 million judgment, more than twice its general-fund spending for the year.

San Bernardino, a city of 209,000 east of Los Angeles, faces a $45 million deficit this fiscal year, according to a June 26 budget analysis posted on its website. The city has declared fiscal emergencies, negotiated for concessions from employees and reduced its workforce by 20 percent in four years, according to the report.

The city is facing insolvency because of accounting errors, deficit spending, pension and debt costs, and lack of revenue growth, according to the report.

Few Options

“Cities are running out of options,” Michael Sweet, a partner specializing in bankruptcy at the San Francisco office of law firm Fox Rothschild LLP, said today in a telephone interview. “As they see pension contribution obligations and retiree health-care costs going through the roof, revenue is at best stable if not declining.”

“The city’s reserves and discretionary funds have been depleted, and the city faces insolvency,” San Bernardino Interim City Manager Andrea Travis-Miller and Finance Director Jason Simpson wrote in a June 26 memo to the council. “Simply put, the city must now take substantial action to reduce its spending and increase revenues.”

According to its financial statements, the city and its agencies held $243 million of outstanding debt, including $48.6 million of taxable pension-obligation bonds outstanding. The city’s debt per person was $1,506 or $5.37 percent of personal income. San Bernardino had $200 million of outstanding general- obligation bonds, according to the statement.

Untenable Union Wages and  Pension Benefits to Blame

Once again, deficit spending, union wages, and soaring pension obligations are at the heart of the matter.

Los Angeles, Oakland, San Diego, and numerous other cities face the same fate. Just give it time.

Excellent News

Some people will look at this as bad news. However, this is excellent news.

The only solution is to stick it to uncompromising public unions in bankruptcy court. Bankruptcy is the way forward.

About the author: Mike “Mish” Shedlock is a registered investment advisor representative for Sitka Pacific Capital Management. His top-rated global economics blog Mish’s Global Economic Trend Analysis offers insightful commentary every day of the week. He is also a contributing “professor” on Minyanville, a community site focused on economic and financial education. Every Thursday he does a podcast on HoweStreet and on an ad hoc basis he contributes to many other websites, including UnionWatch.

One Response to San Bernardino Considers Bankruptcy

  1. Paul Seabrook says:

    Public unions may have to make significant sacrifices. Was reading up in Vallejo about unions wishing they had done more to compromise before that city had to file for bankruptcy. Not easy times.

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