San Bernardino, struck by attack, aims to keep bankruptcy on track

The bankruptcy, was the result of 2008 financial and housing foreclosure crises

CALIFORNIA: A key San Bernardino bondholder and opponent of the California city's proposed plan to exit bankruptcy offered this week to delay some proceedings in the case after last week's devastating attack.

Luxembourg-based bank EEPK, at odds with the city over its proposal to pay a penny on the dollar for nearly $50 million in pension obligation bonds, offered to push back a key hearing set for later this month.



"I would fully understand if the city has more important things to do at the moment," said Vincent Marriott III, the Ballard Spahr LLP attorney representing EEPK.

The city, now in its fourth year of navigating a thorny municipal bankruptcy, declined the offer in order to keep the case on track.

"We're anxious to implement the bankruptcy plan, because all components of the plan actually result in an improvement to the city's fiscal situation and our ability to provide services," City Attorney Gary Saenz told Reuters this week. "We want to keep moving forward."

Last week's shooting thrust San Bernardino's police force into the national spotlight, as its chief and officers responded to what the FBI considers an act of terrorism, possibly inspired by Islamic State, and one of the deadliest armed attacks on US soil in several years.

It would be an enormous challenge to any police force, let alone one as stretched as that of San Bernardino, a municipality of 210,000 residents that today is one of the most thinly policed US cities of its size, Saenz said.

San Bernardino's police budget has been cut 15 percent to $59.9 million for the current fiscal year from the $70 million spent the year before the city went into bankruptcy in August 2012.

The bankruptcy, among the longest running in US history, was the result of the 2008 financial and housing foreclosure crises as well as years of budget mismanagement. While other areas of the country have solidly rebounded from the recession, San Bernardino has been much slower to bounce back and remains among the poorest cities of its size in California.

The city's police have gone from about 350 sworn officers in 2009 to 290. The city has also slashed police pensions and overtime and wants to introduce a salary cap.

Overall, total city spending this year is down nearly 20 percent to $212.3 million, compared to $264.6 million in 2011.

City struggles with safety

Residents worry that their city is not safe. An online survey conducted by the city earlier this year asked residents to rate how likely they would recommend their city to a friend. Only 1.49 percent gave the highest rating, a 10, with 31 percent giving the lowest score. The vast majority, or 89 percent, said the main reason for not recommending the city was due to safety.



The 14 fatalities in last week's shootings by Syed Rizwan Farook and Tashfeen Malik brought the number of homicides this year in San Bernardino to approximately 40, near the 42 investigated by city's police last year.

One reason the city is eager to have its plan for exiting bankruptcy quickly approved by US Bankruptcy Court Judge Meredith Jury is that it would boost spending on police by $10 million and add 50 officers to the department.

"Before we put a deal in place with the city, morale was eroding and really terrible," said Ron Oliner, attorney representing San Bernardino Police Officers Association.

"Long-time sworn officers were looking for jobs in other cities," he added. "As a result of making the deal with us, the police union reports far less attrition. The stability that has come with the contract has resulted in more folks staying with the force."

San Bernardino's fire department, which played a key role in responding to last week's attack, has also taken a hit during the bankruptcy.

The city's fire budget dropped 17 percent to $30.6 million this year from $37 million spend in the 2011-12 fiscal year. Concerned over the lack of stability, an estimated 15-17 firefighters have left in the last three years for other departments.

Acting Fire Chief Tom Hannemann said he expects a plan to annex the city's fire department into San Bernardino County would go forward despite the attack and it would not result in any reduction in services.

Even if the city is not asking for delays in bankruptcy proceedings as a result of last week's attack, it is hoping for understanding. Saenz said he hopes creditors will be "a little softer in terms of their approach and a little less aggressive, that could be helpful to our city."

"That may be the kind of humanistic approach that may develop," he added.

But EEPK does not plan to drop its challenge.

"Our position in the case has been that the city can treat pension obligation bonds better than it proposes to and still provide adequate level of services," Marriott said.