San Bernardino, Stockton took different routes to bankruptcy

A tale of two cities is about to play out in California, giving a real-time look at vastly different routes through financial ruin and rebuilding.

Stockton became the nation's largest city to file for bankruptcy in late June after three months of state-mandated negotiations with creditors under a new California law designed to slow municipal bankruptcies and reduce lawsuits should the city eventually fail.

San Bernardino unexpectedly ran out of operating revenue, revealing Tuesday that the city had less than $150,000 and couldn't meet August payroll. They are expected to declare a fiscal emergency triggering an "emergency exit" clause in the mediation bill, AB 506, and immediately file for bankruptcy protection.

PHOTOS: California cities in bankruptcy

Karol Denniston, an attorney who helped draft AB 506, said the emergency exit had been designed for cases such as that of Orange County, which had made risky investments that unexpectedly gutted its budget. San Bernardino's situation had not been forecast.

"The real horrible question here is 'How do you end up with 30 days of liquidity?' " she said. "You have creditors looking at a city that went from 0 to 100 miles to bankruptcy. You have city leaders saying fiscal information was not accurate or reliable. This could create multiple layers of litigation that hurts creditors, employees and taxpayers for a very long time to come."

San Bernardino may file for bankruptcy

Facing a mounting budget deficit and dwindling tax revenue, the San Bernardino City Council on Tuesday is scheduled to consider drastic budget cuts, possibly filing for bankruptcy, to save the city from financial ruin.

The city’s fiscal crisis has been years in the making, triggered by the nation’s crushing recession and exacerbated by escalating pension costs, lucrative labor agreements, Sacramento’s raid on redevelopment funds and a city reserve that is tapped out, city officials said.

“Deficits of major proportions are projected” for the next five years, Interim City Manager Andrea Miller and Director of Finance Jason Simpson said in a letter to the council.

The dire fiscal situation remains even after the city negotiated $10 million in concessions from city employees and slashed the workforce by 20% over the last four years. “Yet, the city is still facing the possibility of insolvency due to a variety of issues including accounting errors, deficit spending, lack of revenue growth and increases in pension and debt costs," according to a budget analysis prepared for the council.

“The city has reached a breaking point and faces the reality of deficient cash on hand to meet its contractual and debt obligations," the report said.

The city faces a $45-million shortfall in the next fiscal year, and has seen tax revenue decline by nearly $16 million annually over the last few years, according to the financial analysis presented to the council. The city’s general fund, which pays for police and fire protection, had an estimated $114 million in revenue and $129 million in expenditures for the current fiscal year, city financial records show.

Along with raiding taxes and slashing city services, including the city’s Police Department, the mayor and seven-member council will consider filing for Chapter 9 bankruptcy protection, the portion of the federal bankruptcy code set aside for municipalities.

If San Bernardino votes to declare bankruptcy, it would be the third California city to do so in recent weeks, joining Stockton and Mammoth Lakes. The council called special back-to-back budget meetings Tuesday and Wednesday, which are expected to attract a packed house at City Hall.

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-- Phil Willon in San Bernardino

Photo: The housing bust, economic recession, pension costs and deficit spending have pushed the city of San Bernardino to the brink of bankruptcy. Credit: Los Angeles Times

Feds want to swap old courthouse for a new downtown L.A. building

Federal officials want to construct a new office building in downtown Los Angeles, next to a long-planned courthouse, but the proposal could draw scrutiny from congressional Republicans.

Both the courthouse and office building would be erected on a vacant, fenced-off site at 1st Street and Broadway. The office building would house the U.S. attorney and Department of Homeland Security workers.

The proposal for a second government building is surprising given that the courthouse’s $400-million cost has drawn GOP opposition.

But the head of the General Services Administration is offering a novel plan that he says will save taxpayers millions of dollars: He proposes swapping the Spring Street site of the existing Depression-era U.S. courthouse with a developer who would, in exchange, construct the new office building at an estimated cost of $50 million to the developer.

The proposal arrives at a time when the GSA has come under scrutiny on Capitol Hill, most notably for its $823,000 Las Vegas area conference in 2010 but also for its management of federal properties. Rep. Jeff Denham (R-Turlock), who chairs the House subcommittee overseeing federal buildings, has been critical of the courthouse project, calling it unnecessary. He was not immediately available to comment on the new proposal.

But Dan Tangherlini, the GSA’s acting administrator, said in a letter to lawmakers that plans for the long-stalled courthouse are moving ahead, with a design-construction contract set to be awarded this fall. The courthouse is scheduled for completion in 2016.

Terminal Island named a 'most endangered' historic place

The Port of Los Angeles’ Terminal Island was named one of America’s most endangered historic places Tuesday night by the National Trust for Historic Preservation.

Three pioneering tuna fish canneries and a shipyard that built Navy vessels during World Wars I and II face demolition under a land-use plan proposed by port officials, the Washington-based group said.

The tuna packing process was invented on Terminal Island, which was home to canned tuna giants Chicken of the Sea and Star-Kist. At its peak, the island employed 1,800 cannery workers and 4,800 fishermen, many of Japanese descent who were abruptly rounded up and relocated to wartime internment camps in 1942.

The long-range Terminal Island development plan calls for the realignment of streets, which would require the razing of structures that date as far back as 1903.

Trust President Stephanie Meeks called on the port to work with her organization and the Los Angeles Conservancy to revise the master plan to preserve the historic buildings. She urged officials to promote new uses for the buildings that allow for public access.

Port officials were not immediately available for comment about Terminal Island being included in the annual compilation.

The "America’s 11 Most Endangered Historic Places" list was released at midnight Eastern time. Also among the 11 sites singled out were a trio of Yosemite Valley bridges being considered for removal by the National Park Service. The rustic-style spans cross the Merced River in the center of the valley.

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Photo: The tuna canneries at the Port of Los Angeles' Terminal Island employed thousands of workers within cavernous warehouses. Credit: Los Angeles Times file photo

Cities lose in court battle over redevelopment funds

A Sacramento County Superior Court judge Wednesday afternoon refused to side with a group of California cities in their battle with the state over hundreds of millions of property tax dollars that used to flow to local redevelopment agencies.

Judge Timothy M. Frawley said he would not grant the request from Glendale, Pasadena, Huntington Beach and other cities for an injunction that would have prevented the payout of property taxes Friday to schools and other local governments.

Cities believe some of that money belongs to them and should be used to pay for local projects such as parks, affordable housing and freeway intersections that had been agreed upon before Gov. Jerry Brown won his battle to eliminate California’s 400 municipal redevelopment agencies late last year. Brown argued that the state can no longer afford redevelopment, and the $5 billion in property taxes they take in each year will now flow back to school districts and counties.

But cities and the state have been fighting for months about the way the agencies are being dismantled.

The law allows cities to hold on to some of the $5 billion they used to collect each year so they can pay existing debts. The problem is that the two sides have drastically different views of which contracts must be honored as "enforceable obligations."

As of last week, state officials had questioned more than $350 million for this year alone that cities said they were entitled to for projects that were already decided upon.

Neither side expects this hearing to be the last time they see each other in court. A spate of additional lawsuits is expected over specific projects.

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-- Jessica Garrison

Photo: Huntington Beach is one of the cities that failed in the attempt to win an injunction. Credit: Allen J. Schaben/Los Angeles Times