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With Only $150K In Cash, Calif. City Goes Bankrupt

Jul 11, 2012
Originally published on July 12, 2012 12:24 pm
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MELISSA BLOCK, HOST:

Another California city has voted to declare bankruptcy. The city council of San Bernardino, 60 miles east of Los Angeles, made the decision last night.

And as NPR's Carrie Kahn reports, we can expect more municipalities to make the same call before the year is out.

CARRIE KAHN, BYLINE: Once lush with orange groves and drive-ins on the famed Route 66, San Bernardino is better known today for high crime and foreclosed homes. With more than $40 million in the red and only about $150,000 dollars in cash, acting city manager, Andrea Travis Miller, cut to the chase at last night's city council meeting.

ANDREA TRAVIS MILLER: At this point, the city does not have reserves to draw upon, as many communities do to assist them in weathering the economic crisis. And we're at a critical point.

KAHN: The city had already slashed its workforce by 20 percent and negotiated $10 million in concessions from the remaining employees. There just wasn't enough money coming in. And like the cities of Stockton and Mammoth Lakes just weeks before, San Bernardino voted to declare bankruptcy. That will provide the city with some protection from creditors and free up cash to make payroll.

Chris McKenzie of the League of California Cities says both the recession and the housing crisis are hitting cities hard.

CHRIS MCKENZIE: That problem has many roots and many causes, and this is not something that these communities are going to be able to recover from quickly.

KAHN: On top of those economic pressures, there's also the high cost of public pension funds that is placing a huge burden on California cities, says Joe Nation, a public policy professor at Stanford.

JOE NATION: I think we're seeing the tip of the iceberg in terms of bankruptcies across the state. I think the problem will get far, far worse before it gets better.

KAHN: California lawmakers have promised to deal with public pension reform this summer. But Nation says he's skeptical the democratically controlled state legislature will make the substantial reforms necessary. Without them, he says, more California cities will undoubtedly go bankrupt. Carrie Kahn, NPR News. Transcript provided by NPR, Copyright NPR.