Plenty of blame on long road to San Bernardino bankruptcy

Cash was so tight in San Bernardino that potholes went unfilled, burned-out streetlights were left untouched and ball fields languished unmowed.

That was two years ago, when the City Council learned that San Bernardino’s $22-million budget shortfall would jump to $38 million by 2012, sending the city into financial ruin.

City leaders slashed the workforce, extracted temporary concessions from labor unions and auctioned off public land. But they failed to heed warnings that those steps weren’t nearly enough to address endemic problems in the Inland Empire city. Instead, calls for swift, dramatic action — such as raising taxes or outsourcing the police and fire protection — fell victim to a noxious political atmosphere that has paralyzed City Hall throughout the economic crisis, according to interviews with past and present city officials.

DOCUMENT: San Bernardino bankruptcy report

“I told the council two years in a row that, if this continues, we’re going to be looking at bankruptcy. I got criticized for bringing up the word ‘bankruptcy.’ They called it scare tactics,” said former City Manager Charles McNeely, who resigned unexpectedly in May. “The politics of that place are just impossible to deal with.”

McNeely wasn’t surprised when the council, facing a $45.8-million budget shortfall in the current fiscal year, voted Tuesday night to seek bankruptcy protection, the third California city to do so in the last month. San Bernardino is broke, without even enough money to pay employees through the summer.

The financial turmoil in San Bernardino, while in many ways a product of its own politics, illustrates the devastating effect the economic downturn has had on cities and the basic everyday services they provide, Palmdale City Manager David Childs said.

PHOTOS: California cities in bankruptcy

“Palmdale has been hit hard, like many cities,” said Childs, past president of the International City/County Management Assn. “We’ll get through it. But I can really sympathize with them being on the brink. One or two bad things can put a city over the edge. One or two good things can save them.”

The possibility that city actions could lead to criminal charges was revived Thursday, after the Sheriff’sDepartment said it had launched an investigation several months ago into allegations of “possible criminal activity within departments of the San Bernardino city government.” Officials did not elaborate. “The investi¿gation is continuing and details will not be released at this time,” the statement said.

On Thursday, San Bernardino city leaders were engaged in damage control. “It is important to note that in order to balance the city’s budget, deep cuts will have to be made across the board,” interim City Manager Andrea Miller said in a statement. “We will continue to provide essential services and are committed to meeting our obligations.”The police and fire chiefs of the city held a news conference to reassure residents that public safety will not be compromised.

Shortly after taking the job in late 2008, McNeely and his staff prepared a “most likely case” financial projection laying out the mushrooming budget deficits in the years ahead. McNeely said “any seventh-grader” could see the troubles ahead.

“I don’t think anybody was wasting money; there was never money to waste,” he said. “The city’s revenue base has just been on the decline for years.”

Other than Indian gaming, the major employment sources for city residents depend on public funding that has proved volatile during the recession: Cal State San Bernardino and a community hospital, according to a financial report submitted to the council Tuesday. About 80% of the city’s taxable parcels are residential, the report said.

The city’s unemployment rate is above 15%, compared to 10.9% in the state, according to the report. Meanwhile, more than 40% of city residents receive some form of public assistance, according to Redlands economist John Husing, who advises cities and companies throughout the Inland Empire. Without more jobs or rising property values, there is little way to raise revenue, the budget report warned.

Many of the city’s efforts to kick start the city’s tax base, declining by more than $16 million a year, have either stalled or been rejected by the politically divided City Council, McNeely said.

San Bernardino’s economic development agency paid $13 million for the abandoned Carousel Mall in 2011 after private efforts failed to transform the vacant shopping center into a hip spot for retail and downtown housing. The council rejected tax increases, saying that residents were already feeling the financial pinch, and shot down proposals to install downtown parking meters or have the Police Department run its own impound lot.

Two years ago, Husing told city leaders to consider dismantling the city’s police and fire departments and instead contract with the county sheriff and fire agencies. Public safety accounts for nearly 75% of the city’s general fund budget.

“The costs for police and fire have tended to crowd everything else out,” Husing said. “They immediately started attacking the idea. It just shows how powerful those unions have been in that community.”

Police union President Steve Turner said officers have done more than their share to help bail out the city, agreeing to a temporary 10% cut in compensation. He discounted the escalating employee pension costs, which are expected to increase from $6.5 million to $7.5 million this fiscal year, as a major contributor to the city’s financial woes.

“Public pensions are not what’s breaking the bank in this city,” he said. “It’s the mismanagement. Spending money like there’s wheelbarrows of it.”

Councilwoman Wendy McCammack said slashing the Police Department or turning it over to outside agencies would have been too great a risk.

Instead, she said, the council should have eliminated every other “nonessential” program, including many of those favored by Mayor Patrick Morris, with whom McCammack often clashed. “I voted against at least three of the last six budgets and I did so because I did not believe that they were structurally sound. Unfortunately, I was outnumbered by a majority of the council,” she said.

The political divide in City Hall became evident again this week when City Atty. James Penman, who ran unsuccessfully for mayor against Morris, alleged that budget documents might have been “falsified” to hide the city’s financial picture. Penman later said he was unsure if there had been deliberate wrongdoing, but added that he turned the matter over to outside agencies to investigate.

The mayor said that he was “stunned” by Penman’s statement, saying that he was aware there had been discrepancies between the city’s mid-year budget review and audited financial statements, but he characterized it as “sloppy budget analysis.”

The financial analysis presented to the City Council this week found that the city’s general fund balance had been “erroneously stated for the past two fiscal years.” In 2011-2012, the report noted, the city’s financial staff reported a $2-million surplus. A year-end audit, however, found San Bernardino had a $1.1-million deficit.

Miller, the interim city manager, said that even without the inaccurate financial reporting, the city would have faced a budget crisis. “Really it’s no one’s fault, and yet it’s everyone’s fault,” she said.

phil.willon@latimes.com

abby.sewell@latimes.com