San Bernardino postpones bankruptcy-related vote

The San Bernardino City Council postponed a vote Monday to declare a fiscal emergency, which would allow the city to move forward with filing for Chapter 9 bankruptcy protection without going through months of state-mandated mediation.

The city’s flirtation with bankruptcy began last week when the council confronted a fiscal report showing it faced a $46-million budget shortfall and might not be able to make its August payroll.

Interim City Manager Andrea Travis-Miller told the council Monday that a “host of creditors” had contacted the city by telephone, some of them threatening to sue, after the council voted last Tuesday to authorize moving toward bankruptcy. Credit card companies already have canceled the city’s cards, she added.

The city must now pay cash for services such as gasoline for city vehicles and has received an influx of claims from people planning to sue, she said. On top of that, Travis-Miller said, the city is facing a surge of employees filing for retirement, which will mean large payouts for unused vacation time and other benefits.

A vote to declare a fiscal emergency would mean the city would not be required to go through a state-mandated 60-day mediation with creditors, a process that analysts who watched the discussions recently in Stockton dubbed “Death by a Thousand Meetings.”

Stockton filed for bankruptcy protection in late June, making it the most populous city in the nation to do so. The small Eastern Sierra city of Mammoth Lakes, which faces a massive legal payout from a lawsuit it lost, filed soon after.

San Bernardino would be the first city to take advantage of the loophole in the law by declaring an emergency. To do so, the city would have to show that the city’s financial state “jeopardizes the health, safety or well-being” of residents and that the city would be unable to meet its obligations within the next 60 days.

Councilwoman Wendy McCammack proposed postponing the decision so she could gather more information. The council unanimously voted to postpone the vote until Wednesday evening.

For two hours before the council discussion and vote, residents, city employees and labor representatives stood up to express dismay over the impending move toward bankruptcy.

Stephen Johns, 33, a city sewer maintenance worker, said he felt betrayed by the revelation that the City Council had been warned for years of the city’s fiscal situation. “I thought there was supposed to be transparency in government. What happened?” he said.

Corie Lopez, 30, a fourth-generation resident, called the plight “shameful and ridiculous.” She said part of the blame falls on residents for failing to watch their elected officials closely enough.

A few, including Kenneth Cash, 58, expressed support for the city. Cash said he had filed for bankruptcy protection himself. “I never thought in my wildest dreams that something like this would happen, but you have to do what you have to do,” he said.

City Atty. James Penman added fuel to the controversy last week when he alleged that city financial reports had been falsified for years. Penman later backed away from the statement, saying he was unsure if there had been intentional wrongdoing but that he had turned over information to outside agencies.

Penman said Monday that he felt the city had been given “false information, misleading information, incorrect information” in budget documents.

Jason Simpson, the city’s finance director, said Monday that city officials for years had been borrowing from restricted funds to pay general fund expenses, a fact not reflected in the city’s budget documents or audited financial statements.

Councilman Rikke Van Johnson blasted the city attorney for last week’s comments, accusing him of “throwing city employees under the bus on the national stage.” He likened the statements to a “misdirection” play in football, adding, “Regrettably, here locally we are familiar with the misdirection leadership strategy that is played by our city attorney.”

Along with postponing the vote to declare an emergency, the council voted unanimously to begin formal negotiations with labor groups.

abby.sewell@latimes.com