July 24, 2012 4 Comments
The City of San Bernardino recently released this memorandum. The authors of the memorandum, dated July 23, 2012, are Interim City Manager Andrea Travis-Miller and Director of Finance Jason Simpson. The memorandum is addressed to the Mayor and Common Council.
The summary on the first page says:
On July 18, 2012, the City Council directed the filing of a petition under Chapter 9 of the
United States Bankruptcy Code following the declaration of a fiscal emergency in the
City of San Bernardino. These actions were in response to findings that the financial
state of the City is such that the health, safety, and well-being of the residents of the
City will be jeopardized absent Chapter 9 bankruptcy protection.
This report proposes a Fiscal Emergency Operating Plan, which will enable the City to
operate while it is under Chapter 9 protection and includes recommendations for various
actions related to the City’s Preliminary FY 2012-13 General Fund Budget, which
combined will represent the City’s Financial Plan for FY 2012-13. This Fiscal
Emergency Operating Plan is necessary for the City to operate until the Pendency Plan
is developed under Chapter 9 and is presented for Council consideration as part of this
This report covers the funding and operations of the City’s General Fund and does not
include any special purpose or restricted funds with the exception of capital projects.
The budgets for those funds will be provided to the Council by the end of August 2012.
Some other highlights:
From Page 2:
The Preliminary FY 2012-13 Budget has an operating shortfall of $45.8 million and does
not provide for any reserves nor does it address the estimated $18 million negative cash
balance in the General Fund. At Fiscal Year end, the negative cash is expected to grow
to $59.2 million in the absence of drastic measures to reduce the City’s obligations
through restructuring. The City’s financial situation is dire with no revenue or other
funding sources available to balance the City’s budget and address prior years’ deficits.
In bold, from Page 2:
The City must create a plan to emerge from this
fiscal crisis that is truly sustainable, with reliable ongoing revenues covering the
full operational costs, both direct and indirect, and sufficient reserves to weather
economic uncertainty, revenue fluctuations, and emergency spending
From Page 3:
City staff will be reducing costs through the realignment of the organization and will
present a balanced budget for consideration by the Council during the coming weeks.
However, the actions to date have been insufficient and without further reduction of
costs through restructuring of obligations and severe service level reductions, the City
will be unable to adopt a balanced budget as required by the City’s Charter and the
General Fund Negative Cash Balance of $18 million dollars as of June 30, 2012:
Overall, the balance of the City’s total cash and investment portfolio, as reported in the
most recent financial statements for the year ended June 30, 2012, (unaudited) was $27
million. Of this balance, 100% was held in restricted funds (assessment districts,
bonds, trust funds, special revenues, and tax measures), and the General Fund has a
negative cash balance of $18 million. While the City continues to hold investment
balances, the balances are from restricted sources not available for general operations.
City’s Unfunded liabilities of $296 million:
In addition to the City’s bonded indebtedness and lease obligations, unfunded liabilities
total approximately $296 million. Unfunded liabilities include unfunded pension
obligations of $195 million, retiree medical of $61 million, compensated absences of $20
million, general liability of $10 million, and worker’s compensation of $10 million.
Actions for the next three months:
remainder of the schedule details the actions proposed to be taken to meet the cash
flow needs of the City during this interim time frame. Measures proposed include:
1. Deferring debt and lease payments due in the First Quarter in the amount of
$3,556,972 until some later date. Debt and lease payments include payments for
Pension Bonds and Infrastructure Bank Loans.
2. Deferring the annual debt payment on the New World system in the amount of
3. Maintaining vacancies resulting in a savings of $531,000 per month in salaries,
$158,031 per month in PERS payments, $53,919 per month in health insurance
costs, and $9,200 per month in other benefit payments.
4. Continuing the employment concessions agreed to by the General Unit, Middle
Management Unit, and Management/Confidential Unit in the amount of
$2,994,764. The agreements with the Police Safety, Police Management, and
Fire Management have not expired, and there currently is no contract with the
5. Deferring the ARC contribution for retiree health due in the First Quarter in the
amount of $2,219,332.
6. Deferring capital improvement projects for the foreseeable future.
Unfortunately, these measures are intended to enable the City to meet its obligations
over a 3-month period and will not result in a sustainable, balanced budget. City staff is
preparing a Pendency Plan which will serve as the budget until the bankruptcy court
approves a long-term Plan of Adjustment. Over the next 30 days, staff will work to
prepare a Pendency Plan that focuses the City’s limited resources on sustaining basic
service delivery, addressing contractual obligations, and establishing a fair,
compensation structure so the City can retain quality employees to provide essential
public services. The Pendency Plan will balance anticipated revenues against
expenditures through a restructuring of the organization and service delivery
necessary to reduce expenditures by roughly 30% of the Preliminary Budget.
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