After five years that brought major changes to San Bernardino, the struggling city is officially out of bankruptcy.
The city’s plan for emerging from bankruptcy — which was approved earlier this year by U.S. Bankruptcy Judge Meredith Jury — became effective June 15, officials said this week. The city, facing a $45-million budget shortfall, had declared bankruptcy in August 2012.
In the years-long process since, San Bernardino has seen its fire department and other services outsourced, its staff cut by hundreds and its public services neglected. Meanwhile, it has struggled to cope with increased violence that officials have attributed in part to an under-resourced Police Department.
Here are some things to know about the end of the bankruptcy process, what it means for the city and what might be next.
1. Now that it is out of bankruptcy, San Bernardino must begin paying its creditors
The city’s plan of adjustment became effective June 15. That means the city can begin paying its creditors under the terms outlined in that plan, which was negotiated over several years.
Its details have been known for some time.
Most significantly, the plan preserves pension benefits for employees and retirees, though employees will have to contribute more to their pension plans, benefits were modified for new employees and retirees will lose some health benefits they were promised.
Some bondholders and unsecured creditors will be paid only 1% of what they were owed.
2. The city’s budget woes are far from over
In a memorandum on the city’s most recent budget, City Manager Mark Scott put it this way: “While the city’s momentum has improved significantly, it would be overly optimistic to suggest that decades of decline can be reversed overnight.”
The bankruptcy plan, Scott noted, “is very realistic in showing only modest budgetary growth” over a 20-year period.
The city’s poverty rate is high — about 33% of its residents live in poverty — and its average household income is low, making it difficult for San Bernardino to generate the revenue it needs to pay for years of backlogged services.
But city officials say they are slowly making progress toward some of their goals.
The City Council on Wednesday unanimously approved a $160-million operating budget for the coming fiscal year, along with a $22.6-million capital improvement budget, which will help with street repairs, city park improvements and other much-needed projects.
The operating budget also allows for some additional staff in various departments.
3. With the end of bankruptcy, San Bernardino is hoping to rebuild its Police Department and address its struggles with violence
San Bernardino has long been affected by high levels of violence, and last year it recorded its worst homicide rate in decades. So officials have focused on boosting the Police Department, which saw significant staffing cuts in recent years.
Under the city’s newly adopted budget, about $76 million has been dedicated to funding the department — up from about $70 million last year.
“We’re gearing up to have a Police Department that’s better resourced,” Scott said in an interview Wednesday.
The city is in the process of replacing about one-quarter of an aging fleet of police vehicles, Scott said. And it is hoping to fill a large number of vacant officer positions — but that is no easy goal, given the time and resources it takes to recruit and train new police officers.
The department’s resources have been boosted by a number of grants, including a federal grant announced late last year to offset the cost of hiring 11 officers.
The city is also in the process of implementing a new violence reduction program, and officials are in the late stages of recruiting someone to administer it, Scott said.
4. City officials are hoping the end of bankruptcy prompts people to take a second look at San Bernardino
City officials would like people outside the city to see its potential rather than its troubles. They tout the fact that it is home to Cal State San Bernardino and San Bernardino Valley Community College, its relatively low-cost housing and lower costs of doing business.
A proposal for this year’s budget stated:
“Opportunities for first-time home buyers, entrepreneurs, investors and employers are vast; one only needs to see the potential.”
Bankruptcy has cast a cloud over many of the city’s aspirations. Now that it’s lifted, officials are hoping outsiders will take a new look at the city.
“The thing I’ve run into is that people have not understood how they are going to do business with a city in bankruptcy,” Scott said. They ask, “ ‘Will you keep your staff? Will you be able to follow through on your obligations?’ ”
“Now,” he said, “we’re able to say to people, ‘We’re like any other city.’ ”
He added: “It’s time for us to show off that we can be a reliable place to do business…. It’s up to us now to perform.”
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3:25 p.m.: This article was updated to say that San Bernardino approved its annual budget Wednesday night.
This article was originally published at 5:25 p.m. on June 21.