City of San Bernardino Exits Bankruptcy in Strong Financial Position
On September 8th, U.S. Bankruptcy Judge Scott C. Clarkson issued an order discharging the City of San Bernardino’s bankruptcy case, bringing an end to a process that began over ten years ago.
"What exciting news and a moment for San Bernardino residents collectively to celebrate,” said Mayor John Valdivia. “The closure of this chapter in our city's history - the grueling and deep cuts we all experienced are in the rearview mirror of San Bernardino's history. I wish to express my gratitude to our community along with the businesses who have stood fast with our city.”
San Bernardino exits bankruptcy in a strong financial position. The City has cash reserves exceeding $40 million and a projected budget surplus of $2.5 million this fiscal year. The cash reserves represent 25% of the general fund budget, a threshold indicating financial stability for a city government. When San Bernardino entered bankruptcy in 2012, the city had a cash deficit of $18.2 million and a projected $45.8 million budget deficit.
“Our city is now pivoting to successfully re-establish and expand core services to our taxpayers and business community,” added Mayor Valdivia. “The council is focused on thoughtful and focused priorities to enhance these services and I want to commend these council members on this great win for our city.”
In recent months, the City has been allocating resources to repave streets, trim trees, and renovate parks and senior centers. This year alone, work has been completed or is underway to improve segments of 53 streets across the City as well as a 27-block segment of Sierra Way. Additional construction projects will soon commence on improvements along a two-mile segment of Pepper Avenue and the long-awaited extension of State Street.
“Projects that for many years were deferred are now happening,” said City Manager Robert Field. “Residents are noticing a difference.”
San Bernardino has also been strategically hiring needed staff, including police officers and code enforcement officers. The city recently added a housing and homelessness team to work on issues related to the city’s unhoused population, and a grants team to identify, seek, and manage external funding.
“The real unsung heroes throughout this process were the residents of San Bernardino, added Field. “In a time of crisis, they stepped up by approving a major structural re-organization of our city government along with a local sales tax measure. The importance of those votes cannot be overstated.”
In 2016, San Bernardino voters approved an overhaul to the City’s Charter, changing the organizational structure to a council-city manager form of government. In 2020, voters also approved a local 1% sales tax measure, which has helped provide revenue stability not seen in San Bernardino in many years.
Facing a dire liquidity crisis, having no funds in its General Fund (its unrestricted operating fund) or other reserves, and with no ability to access short-term credit markets, San Bernardino filed for Chapter 9 bankruptcy protection on August 1, 2012. At the time, it was the third largest municipal bankruptcy in U.S. history.
In February of 2017, the City’s Plan of Adjustment was approved by the Bankruptcy Court. The Plan set a course of action to pay or settle with creditors and ultimately allow San Bernardino to return to normal operations.
When the Plan of Adjustment was approved, there were over a thousand claims and approximately two hundred lawsuits against the City. To close the bankruptcy case, it was necessary for San Bernardino to resolve the claims and lawsuits through the claims process, contested matters, adversary proceedings and mediations in the bankruptcy case.
San Bernardino was able to show the Court that it had taken all actions required in the Plan of Adjustment, had made all required payments to date under the Plan, and would be able to continue to pay its remaining long-term obligations. Having met the terms of the Plan, the Court approved the City’s motion to discharge the bankruptcy.
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