California Bankruptcies are Only the Beginning

Posted on July 12, 2012 at 12:18pm by

San Bernardino became the third California city to file for bankruptcy in the past few weeks … but it won’t be the last, according to CNNMoney.

Many municipalities in the Golden State and around the nation are struggling to cover their costs as the economic malaise continues to hurt tax revenue streams, experts said. This will lead to more municipal bankruptcies, which have been rare until now.

“This is not the end. This is the beginning,” said Peter Navarro, business professor at University of California, Irvine. “As cities see it can be done and is being done, it will give them the idea to do it.”

The San Bernardino City Council voted Tuesday to file for Chapter 9 bankruptcy after the interim city manager issued a report that outlined its dire straits. Some $10 million to $16 million in annual revenue has evaporated in recent years as taxable sales dried up and property values plummeted.

Despite negotiating tens of millions of dollars in concessions and reducing its workforce by 20% over the past four years, San Bernardino was facing insolvency and would not have enough cash on hand to meet its obligations, according to the report.

“The city has reached a breaking point,” the report said, noting the municipality of 211,000 residents was facing a $45 million shortfall.