The state of California in the United States of America may have a positive image to many people. After all, it is home to some of the most popular cities such as Los Angeles, San Diego, San Francisco, Sacramento, not to mention Hollywood.
But not every city in this western state is doing well financially. One city that has been struggling in recent years is San Bernardino. Reports claimed that the area now has a high unemployment rate, is badly affected by drought and is facing bankruptcy. It declared bankruptcy in 2012 due to a $45 million deficit.
“A city that is bankrupt normally gets protection in accordance to Chapter 9 of the federal bankruptcy code,” said Matt Resnik, a lawyer who specializes in chapter 13 bankruptcy. “The financial struggle takes place when a city is not able to keep up with its obligations such as concerning payrolls, services and pensions among others. Despite the temporary protection, though, it still needs to find a solution to get out of this poor state.”
San Bernardino’s Situation
Compared to the entire state, San Bernardino with a 60 percent Hispanic population is poorer. For one thing, its median household income is below $40,000 while that of the state is $60,000 hence making the city the poorest among small towns in California.
The city’s economy was growing from 1998 to 2004 by 37 percent and during that period, the government sector recorded nearly 20,000 jobs. However, one major event led to the area’s economic downturn sending the employment rate to go up to 12 percent. This was the closing of the Norton Air Force Base in 1994 that laid off some 10,000 military and civilian workers. By 2012, more than 15 percent of residents had no jobs while more than 40 percent were relying on public assistance.
Last May, San Bernardino’s council voted 6-1 approving a bankruptcy exit plan to scrap the city’s $50 million pension bond debt while still in the process of paying the state pension system Calpers in full. In addition, the city also wants to eliminate its retiree health care costs and to outsource specific services such as fire, emergency response and trash collection.
The exit plan is seen as the proper solution if only to make the city stable again. And this stability can only be achieved when residents will approve the proposed charter revisions being undertaken now by a city task force.
Currently, a professional consulting group is working with the city government on a so-called Plan of Adjustment to analyze its situation. This particular plan lays out the recommended steps to help San Bernardino recover.
Other than San Bernardino, several cities in the U.S. have also experienced bankruptcy notably after the 2008 financial crisis. These include Detroit, Michigan, Stockton, Jefferson County, Alabama and Vallejo.