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Dennis J. Hayes, Esq. Bar No. 123576 Christopher H. Conti, Esq. Bar No. 275032 Hayes & Cunningham, LLP 5925 Kearny Villa Road, Suite 201 San Diego, California 92123 Telephone: (619) 297-6900 Facsimile: (619) 297-6901 Attorneys for Party in Interest San Bernardino Public Employees Association UNITED STATES BANKRUPTCY COURT CENTRAL DISTRICT OF CALIFORNIA RIVERSIDE DIVISION In re: CITY OF SAN BERNARDINO, CALIFORNIA, Debtor. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) CASE NO. 6:12-bk-28006 MJ CHAPTER 9 DECLARATION OF CHRISTOPHER H. CONTI IN SUPPORT OF SAN BERNARDINO PUBLIC EMPLOYEES ASSOCIATIONS OBJECTION TO DEBTOR CITY OF SAN BERNARDINOS PETITION AND STATEMENT OF QUALIFICATION UNDER TITLE 11 U.S.C. SECTION 109(c) Date: Time: Judge: Dept.: November 5, 2012 (Status Conference) 10:00 a.m. Hon. Meredith Jury 301

DECLARATION OF CHRISTOPHER H. CONTI

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I, Christopher H. Conti, declare: 1. I am an attorney duly licensed to practice law before the Courts of the State of

California. I am an associate attorney at the law firm of Hayes & Cunningham, LLP, and counsel of record for Party in Interest San Bernardino Public Employees Association. 2. I have personal knowledge of all of the facts stated herein, unless asserted on

information and belief, and as to those facts, I believe them to be true. If asked to testify as a witness in this matter I could and would competently testify as to all the facts stated. 3. Attached hereto as EXHIBIT 1 is a true and correct copy of the Senate Rules

Committee, AB 506 Bill Analysis (CA 2011), available at http://www.leginfo.ca.gov/pub/1112/bill/asm/ab_0501-0550/ab_506_cfa_20110909_183215_sen_floor.html. 4. Attached hereto as EXHIBIT 2 is a true and correct copy of the Bill Tracking

Summary for Assembly Bill 506. 5. Attached hereto as EXHIBIT 3 is a true and correct copy of Jim Christie and Tori

Richards article, Political Feuds, Denial Drove San Bernardino to Bankruptcy, REUTERS.COM, dated July 15, 2012, available at http://www.reuters.com/article/2012/07/15/us-usa-san-bernardinobankruptcy-causes- idUSBRE86E0JA20120715. 6. Attached hereto as EXHIBIT 4 is a true and correct copy of Abby Sewell and Phil

Willons article, Plenty of Blame On Long Road to San Bernardino Bankruptcy, LATIMES.COM, dated July 12, 2012, available at http://articles.latimes.com/2012/jul/12/local/la-me-san-bernardino20120713. 7. Attached hereto as EXHIBIT 5 is a true and correct copy of Tori Richards article

Bankruptcy: Report Warned of San Bernardino Fiscal Foolishness, CALWATCHDOG.COM, dated July 27, 2012, available at http://www.calwatchdog.com/2012/07/27/bankruptcy-reportwarned-of-san-bernardino-fiscal-foolishness/. 8. Attached hereto as EXHIBIT 6 is a true and correct copy of Jim Christies article,

Authorities Probe San Bernardino, City Mulls Bankruptcy Move, REUTERS.COM, dated July 13, 2012, available at http://www.reuters.com/article/2012/07/13/sanbernardino-investigation-

idUSL2E8ICF7J20120713.

DECLARATION OF CHRISTOPHER H. CONTI


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9.

Attached hereto as EXHIBIT 7 is a true and correct copy of Steven Cuevas

article, City Attorney Claims San Bernardino Administrators Falsified Budget Information for Years, SCPR.ORG, dated July 12, 2012, available at

http://www.scpr.org/news/2012/07/12/33229/city-attorney-claims-san-bernardino-administrators/. 10. Attached hereto as EXHIBIT 8 is a true and correct copy of Phil Willons article

San Bernardino Seeks Bankruptcy Protection, LATIMES.COM, dated July 10, 2012, available at http://articles.latimes.com/2012/jul/10/local/la-me-0711-san-bernardino-20120711. 11. Attached hereto as EXHIBIT 9 is a true and correct copy of Jim Christie and Tim

Reids article, Bankrupt San Bernardino Halts Payment to CalPERS, dated October 19, 2012, THOMSONREUTERS.COM, available at http://newsandinsight.thomsonreuters.com /Legal/News/2012/10_-_October/Bankrupt_San_Bernardino_halts_payments_to_Calpers/.

I declare under penalty of perjury under the laws of the State of California and the United States of America that the foregoing is true and correct.

Executed this 24 day of October, 2012, at San Diego, California. /s/ Christopher H. Conti Christopher H. Conti

DECLARATION OF CHRISTOPHER H. CONTI


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EXHIBIT 1

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BILL ANALYSIS

-----------------------------------------------------------|SENATE RULES COMMITTEE | AB 506| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------

THIRD READING

Bill No: Author: Amended: Vote:

AB 506 Wieckowski (D) 9/8/11 in Senate 21

SENATE GOVERNANCE & FINANCE COMMITTEE : 6-3, 7/6/11 AYES: Wolk, DeSaulnier, Hancock, Hernandez, Kehoe, Liu NOES: Huff, Fuller, La Malfa SENATE APPROPRIATIONS COMMITTEE : 6-3, 8/25/11 AYES: Kehoe, Alquist, Lieu, Pavley, Price, Steinberg NOES: Walters, Emmerson, Runner ASSEMBLY FLOOR : 48-27, 6/2/11 - See last page for vote

SUBJECT : evaluation SOURCE :

Local government:

bankruptcy:

neutral

Author

DIGEST : This bill authorizes a local public entity to file a petition and exercise powers pursuant to applicable federal bankruptcy law if it either participates in a neutral evaluation process, or declares a fiscal emergency. ANALYSIS : Under Chapter 9 of the federal Bankruptcy Code, a municipality receiving protection is shielded from creditor claims while it works out a plan of adjustment with its creditors. The plan of adjustment can involve a reduction to amounts owed, an extension of debt payments, CONTINUED

AB 506 Page 2 or a refinancing of debt. Creditors can include holders of municipal debt, vendors, and counterparties in contracts. Existing state law, SB 1323 (Ackerman), Chapter 94, Statutes of 2002, allows a local public entity to file a petition and exercise powers pursuant to federal law, without any statewide approval or preconditions. Existing law establishes California Debt and Investment Advisory Commission (CDIAC) in the State Treasurer's Office to provide information, education and technical assistance on debt issuance and public fund investments to local public agencies and other public finance professionals. The CDIAC also serves as the state's clearinghouse for public debt issuance information and to assist state and local agencies with the monitoring, issuance, and management of public debt and investments. The Bureau of State Audits (BSA) conducts performance, financial, and compliance audits that are either mandated by statute or requested by the Legislature through the Joint Legislative Audit Committee (JLAC). Information relating to any BSA audit cannot be released to the public until the audit is completed. Specifies of this bill: This bill authorizes a local public entity to file a petition and exercise powers pursuant to applicable federal bankruptcy law if it either: Participates in a neutral evaluation process, or Declares a fiscal emergency. 1. Neutral evaluation process .

This bill authorizes a local public entity to initiate a neutral evaluation process if it is, or likely will become, unable to meet its financial obligations when

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those obligations are due or become due. This bill defines "local public entity" as any county, city, district, public authority, public agency, or other entity, without limitation, that is a municipality as defined in federal bankruptcy law, or that qualifies as a debtor under any other federal bankruptcy law CONTINUED

AB 506 Page 3 applicable to local public entities. This bill specifies that a "local public entity" does not include a school district. This bill requires a local public entity to initiate the neutral evaluation by providing notice by certified mail of a request for neutral evaluation to all interested parties. This bill requires interested parties to respond within 10 business days of receipt of notice of the local public entity's request for neutral evaluation. This bill defines "interested party" as a trustee, a committee of creditors, an affected creditor, an indenture trustee, a pension fund, a bondholder, a union that, under its collective bargaining agreements, has standing to initiate contract or debt restructuring negotiations with the municipality, or a representative selected by an association of retired employees of the public entity who receive income from the public entity convening the neutral evaluation. This bill defines "creditor" as either of the following: An entity that has a claim against a municipality that arose at the time of or before the commencement of the neutral evaluation process and whose claim represents at least $5 million or comprises more than five percent of the local public entity's debt or obligations, whichever is less. An entity that would have a non-contingent claim against the municipality arising out of rejection of an executory contract or unexpired lease in a Chapter 9 case and whose claim would represent at least $5 million or comprises more than five percent of the local public entity's debt or obligations, whichever is less. This bill allows a local public entity to invite holders of contingent claims to participate as interested parties in the neutral evaluation if the local public entity determines that the contingency is likely to occur and the claim may represent $5 million or comprise more than five percent of the local public entity's debt CONTINUED

AB 506 Page 4 or obligations, whichever is less. This bill requires the local public entity and all interested parties participating in the neutral evaluation process to negotiate in good faith. This bill requires the local public entity and interested parties to provide a representative of each party to attend all neutral evaluation sessions. Each party's representative must have the authority to settle and resolve disputes or be in a position to present any proposed settlement or plan of readjustment to the parties participating in the neutral evaluation. This bill requires the parties to maintain the confidentiality of the neutral evaluation process. This bill prohibits parties from disclosing statements made, information disclosed, or documents prepared or produced, during the neutral evaluation process, at the conclusion of the neutral evaluation process, or during any bankruptcy proceeding unless either: All persons that conduct or otherwise participate in the neutral evaluation expressly agree in writing, or orally, to disclosure of the communication, document, or writing.

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The information is deemed necessary by a judge presiding over a bankruptcy proceeding pursuant federal bankruptcy law to determine eligibility of a municipality to proceed with a bankruptcy proceeding.

This bill prohibits a neutral evaluation from lasting for more than 60 days following the date the evaluator is selected, elect to extend the process for up to 30 additional days. The neutral evaluation process shall not last for more than 90 days following the date the evaluator is selected unless the local public entity and a majority of the interested parties agree to an extension. This bill requires an end to the neutral evaluation process must end if any of the following occur: CONTINUED

AB 506 Page 5

The parties execute a settlement agreement. The parties reach an agreement or proposed plan of readjustment that requires the approval of a bankruptcy judge. The neutral evaluation process has exceeded 60 days following the date the neutral evaluator was selected, the parties have not reached an agreement, and neither the local public entity or a majority of the interested parties elect to extend the neutral evaluation process past the initial 60 day time period. The local public entity initiated the neutral evaluation process and received no responses from interested parties within the specified time. The fiscal condition of the local public entity deteriorates to the point that the municipality declares a fiscal emergency. This bill specifies that if the 60 day time period for neutral evaluation has expired, including any extension agreed to by the local public entity, and the neutral evaluation is complete with differences resolved, the neutral evaluation shall be concluded. If the neutral evaluation process does not resolve all pending disputes with creditors, the local public entity may file a petition and exercise powers pursuant to applicable federal bankruptcy law if, in the opinion of the governing board of the local public entity, a bankruptcy filing is necessary. This bill requires the local public entity to pay 50 percent of the costs of neutral evaluation, including but not limited to the fees of the evaluator, and the creditors must pay the balance, unless otherwise agreed to by the parties. 2. Neutral evaluator selection and removal .

This bill requires the local public entity and the CONTINUED

AB 506 Page 6 interested parties who agree to participate in the neutral evaluation through a mutually agreed upon process to select the neutral evaluator to oversee the neutral evaluation process. The interested parties must facilitate all discussions in an effort to resolve their disputes. The board of supervisors of a county that intends to take action pursuant to this section and places a notice on an agenda regarding a proposed resolution to declare a fiscal emergency may require local agencies with funds invested in the county treasury to provide a five-day notice of withdrawal before the county is required to comply with a request for withdrawal of funds by that local agency. If at any time during the neutral evaluation process the local public entity and a majority of the representatives of the interested parties participating

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in the neutral evaluation wish to remove the neutral evaluator, this bill allows the local public entity or any interested party to request that the neutral evaluator be removed. If the local public entity and the majority of the interested parties agree that the neutral evaluator should be removed, the parties must select a new neutral evaluator. If a neutral evaluator is informed of any facts that a reasonable individual would consider likely to create a potential or actual conflict of interest, this bill requires the neutral evaluator to disclose these facts in writing to the local public entity and all interested parties involved in the neutral evaluation. If any party to the neutral evaluation objects to the neutral evaluator, that party must notify all other parties, including the neutral evaluator, within 15 days of receiving the notice from the neutral evaluator, the neutral evaluator must withdraw, and a new neutral evaluator must be selected. 3. Neutral evaluator requirements .

This bill requires that a neutral evaluator must have experience and training in conflict resolution and alternative dispute resolution and must meet at least one of the following qualifications: CONTINUED

AB 506 Page 7

At least 10 years of high-level business or legal practice involving bankruptcy or service as a United States Bankruptcy Judge. Professional experience or training in municipal finance and one or more of the following issue areas: o o o o o o o o o Municipal organization. Municipal debt restructuring. Municipal finance dispute resolution. Chapter 9 bankruptcy. Public finance. Taxation. California constitutional law. California labor law. Federal labor law.

This bill provides that a neutral evaluator: Must be impartial, objective, independent, and free from prejudice. Cannot act with partiality or prejudice based on any participant's personal characteristics, background, values or beliefs, or performance during the neutral evaluation process. Must avoid a conflict of interest, or the appearance of a conflict of interest, during the neutral evaluation process and must make a reasonable inquiry to determine whether there are any facts that a reasonable individual would consider likely to create a potential or actual conflict of interest. Cannot, before the neutral evaluation process, establish another relationship with any of the parties in a manner that would raise questions about the integrity of the neutral evaluation, except that the neutral evaluator may conduct further neutral evaluations regarding other potential local public entities that may involve some of the same or similar constituents to a prior mediation.

CONTINUED

AB 506 Page 8 Must conduct the neutral evaluation process in a manner that promotes voluntary, uncoerced decisionmaking in which each party makes free and informed choices regarding the process and outcome. Cannot impose a settlement on the parties.

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Must use his/her best efforts to assist the parties to reach a satisfactory resolution of their disputes. May make oral or written recommendations for settlement or plan of readjustment to a party privately or to all parties jointly. Must inform the local public entity and all parties of the provisions of Chapter 9 relative to other chapters of the bankruptcy codes. This instruction must highlight the limited authority of United States bankruptcy judges in Chapter 9, such as the lack of flexibility available to judges to reduce or cram down debt repayments and similar efforts not available to reorganize the operations of the city that may be available to a corporate entity. May request documentation and other information from the parties that the neutral evaluator believes may be helpful in assisting the parties to address the obligations between them. This documentation may include the status of funds of the local public entity that clearly distinguishes between general funds and special funds, and the proposed plan of readjustment prepared by the local public entity. Must provide counsel and guidance to all parties, shall not be a legal representative of any party, and shall not have a fiduciary duty to any party. May, in the event of a settlement with all interested parties, assist the parties in negotiating a prepetitioned, preagreed plan of readjustment in connection with a potential Chapter 9 filing. 4. Fiscal emergency declaration . CONTINUED

AB 506 Page 9

As an alternative to the neutral evaluation process, this bill authorizes a local public entity to file a petition and exercise powers pursuant to federal bankruptcy law if the local public entity declares a fiscal emergency and adopts a resolution by a majority vote of the governing board. The resolution must: Be adopted at a noticed public hearing. Include findings that the financial state of the local public entity jeopardizes the health, safety, or well-being of the residents of the local public entity's jurisdiction or service area, absent the protections of Chapter 9. Make findings that the public entity is or will be unable to pay its obligations within the next 60 days. Before declaring a fiscal emergency and adopting a resolution, the local public entity must place an item on the agenda of a noticed public hearing on the fiscal condition of the entity to take public comment. 5. Definitions .

This bill defines numerous terms used in this bill. 6. Findings and declarations .

This bill contains extensive legislative findings and declarations supporting the need to establish a neutral evaluation process for municipalities in fiscal distress. As constitutionally required by Proposition 59 (2004), this bill also includes legislative findings and declarations regarding the necessity of maintaining the confidentiality of neutral evaluation proceedings. This bill specifies that it does not impose any liability or responsibility, in law or equity, upon the state, any department, agency, or other entity of the CONTINUED

AB 506

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Page 10 state, or any officer or employee of the state, for any action taken by any local public entity pursuant to this article, for any violation of the provisions of this article by any local public entity, or for any failure to comply with the provisions of this article by any local public entity. No cause of action against the state, or any department, agency, entity of the state, or any officer or employee of the state acting in their official capacity may be maintained for any activity authorized by this article, or for the act of a local public entity filing under Chapter 9 of Title 11 of the United States Code, including any proceeding following a local public entity's filing. Background Chapter 9 gives government debtors time to come up with repayment plans, providing them a breathing spell from creditors' collection efforts. Only a municipality, which federal law defines as a political subdivision, public agency, or instrumentality of a state, can initiate a Chapter 9 proceeding. The municipality must be insolvent and desire to affect a plan to adjust its debts. Unlike private bankruptcy law (Chapter 11), municipal bankruptcy law must respect the states' sovereign powers. Consequently, the states can control their local agencies' access to federal bankruptcy protection. Like 11 other states, California grants its local public agencies the broadest possible access to federal bankruptcy available. The state statutes broadly authorizing bankruptcy filings by local governments were first enacted in 1939 (SB 338 Phillips, 1939]) and codified in 1949 (SB 768 Cunningham, 1949]). In 2001, after studying the state statutes authorizing bankruptcy filings by local public entities, the California Law Revision Commission recommended revisions to conform the statutes to changes in federal bankruptcy law and to reaffirm the intent of the statute to provide the broadest possible access to municipal debt relief under federal law. Legislators approved the Commission's recommendations the following year (SB 1323 Ackerman], Chapter 94, Statues of 2002). Because one municipality's bankruptcy may have a negative CONTINUED

AB 506 Page 11 effect on other local governments' borrowing power, some states limit or prohibit their local governments to access federal protections. Local governments in 22 states do not have access to municipal bankruptcy, while 16 other states impose some conditions on municipal bankruptcy filings. The conditions imposed by other states range from a requirement that a local entity's legislative body must pass an ordinance or resolution before filing for bankruptcy to a requirement that a state commission grant approval before a local government may file for bankruptcy. After the 1994 Orange County bankruptcy, the Legislature tried to establish state oversight for municipal bankruptcy filings. The bill passed, but Governor Pete Wilson vetoed it (SB 349 Kopp], 1995-96 Session). The Law Revision Commission's 2001 study also considered proposals to require prefiling approval by the Governor or a governmental committee, but did not recommend any substantive reforms. Last year, AB 155 (Mendoza), 2009-10 Session, would have required either the approval of a state commission or the completion of a state audit before a local public entity could file for bankruptcy. That bill died on the Senate Floor. The CDIAC provides information, education, and technical assistance on debt issuance and public fund investments to local public agencies. The BSA conducts performance, financial, and compliance audits that are either mandated by statute or requested by the Legislature through the JLAC. Information relating to any audit conducted by the BSA cannot be released to the public until the audit is completed. In 2008, the City of Vallejo filed a Chapter 9 bankruptcy petition. The City subsequently asked the bankruptcy court for permission to reject collective bargaining agreements with four unions representing city employees. After more than three years, Vallejo remains under the bankruptcy court's protection, although it may emerge from bankruptcy soon. In response to the length, cost, and consequences of

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Vallejo's bankruptcy and the potential for additional municipal bankruptcy filings, labor unions and others want CONTINUED

AB 506 Page 12 local officials to participate in a neutral alternative dispute resolution process before filing for bankruptcy. FISCAL EFFECT Local: No : Appropriation: No Fiscal Com.: No

SUPPORT : (Verified 9/7/11 - per Senate Governance and Finance Committee analysis of 9/2/11) California Conference Board of The Amalgamated Transit Union California Conference of Machinists California Dispute Resolution Council California Labor Federation California Nurses Association California Official Court Reporters Association California Professional Firefighters California Teamsters Public Affairs Council Estero Municipal Improvement District International Federation of Professional and Technical Engineers, Local 21 International Longshore and Warehouse Union Police Officers Research Association of California Professional and Technical Engineers Unite Here! United Food and Commercial Workers Region 8 States Council Utility Workers Union of America, Local 132

ASSEMBLY FLOOR : 48-27, 6/2/11 AYES: Alejo, Allen, Ammiano, Atkins, Beall, Block, Blumenfield, Bonilla, Bradford, Brownley, Butler, Charles Calderon, Campos, Carter, Cedillo, Chesbro, Davis, Dickinson, Eng, Feuer, Fong, Fuentes, Furutani, Galgiani, Gatto, Hayashi, Roger Hernndez, Hill, Huber, Hueso, Huffman, Lara, Bonnie Lowenthal, Ma, Mendoza, Mitchell, Monning, Pan, Perea, V. Manuel Prez, Portantino, Skinner, Solorio, Swanson, Wieckowski, Williams, Yamada, John A. Prez NOES: Achadjian, Bill Berryhill, Conway, Cook, Donnelly, Fletcher, Beth Gaines, Garrick, Grove, Hagman, Halderman, Harkey, Jeffries, Jones, Knight, Logue, Mansoor, Miller, Morrell, Nestande, Nielsen, Norby, Olsen, Silva, Smyth, Valadao, Wagner CONTINUED

AB 506 Page 13 NO VOTE RECORDED: Buchanan, Gordon, Gorell, Hall, Torres

AGB:kc

9/9/11

Senate Floor Analyses SUPPORT/OPPOSITION: **** END SEE ABOVE

****

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CONTINUED

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DEERING'S CALIFORNIA ADVANCE LEGISLATIVE SERVICE Copyright 2011 Matthew Bender & Company, Inc. a member of the LexisNexis Group. All rights reserved. 2011 REGULAR SESSION CHAPTER 675 (Assembly Bill No. 506) BILL TRACKING SUMMARY FOR THIS DOCUMENT 2011 Cal ALS 675; 2011 Cal AB 506; 2011 Cal Stats. ch. 675 Approved by Governor October 9, 2011. Filed with Secretary of State October 9, 2011. Urgency legislation is effective immediately, Non-urgency legislation will become effective January 1, 2012 ------------------------------------------------------------------------------To view the next section, type .np* and TRANSMIT. To view a specific section, transmit p* and the section number. E.g. p*1 -----------------------------------------------------------------------------DIGEST: Local government: bankruptcy: neutral evaluation. Under existing law, any taxing agency or instrumentality of the state may file a petition and prosecute to completion bankruptcy proceedings permitted under the laws of the United States. This bill would prohibit a local public entity from filing under federal bankruptcy law unless the local public entity has participated in a specified neutral evaluation process with interested parties, as defined, or the local public entity has declared a fiscal emergency and has adopted a resolution by a majority vote of the governing board at a noticed public hearing that includes findings that the financial state of the local public entity jeopardizes the health, safety, or well-being of the residents of the local public entity's jurisdiction or service area absent bankruptcy protections. SYNOPSIS: An act to amend Section 53760 of, and to add Sections 53760.1, 53760.3, 53760.5, and 53760.7 to, the Government Code, relating to local government. NOTICE: [A> UPPERCASE TEXT WITHIN THESE SYMBOLS IS ADDED <A] [D> Text within these symbols is deleted <D] TEXT: The people of the State of California do enact as follows: [*1] SECTION 1. The Legislature hereby finds and declares all of the following:

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2011 Cal ALS 675, *1; 2011 Cal AB 506; 2011 Cal Stats. ch. 675

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(a) Filing for Chapter 9 can reduce service levels to the taxpayers and residents of a municipality. In some circumstances, it can have major short- and long-term fiscal consequences for the municipality, the surrounding municipalities, and the state. Filing for bankruptcy protection under Chapter 9 should be considered a last resort, to be instituted only after other reasonable efforts have been made to avoid a bankruptcy filing or otherwise appropriately plan for it. It is in the interest of the state, local governments, and the public that local governmental entities have sufficiently sound financial capacity to provide required services to the public and meet their contractual and other obligations during any restructuring or financial reorganization process. Furthermore, it is in the best interest of the public, the state, and local governmental entities that employees, trade creditors, bondholders, and other interestholders be included in an appropriate restructuring process and have an adequate understanding of the financial capacity of local governmental entities and their obligations, as a clear understanding of both is necessary for any restructuring or reorganization process. (b) To the extent financial relief granted through Chapter 9 can affect debt service payments, the bondholders have a direct interest in the Chapter 9 process, particularly prior to filing. Therefore, it is important for those parties to be able to participate in a prefiling confidential neutral evaluation process that could assist parties in reaching a settlement and avoiding a bankruptcy filing or otherwise lead to a prenegotiated consensual plan of readjustment as clearly contemplated by Section 109(c) of Title 11 of the United States Code. (c) To the extent financial relief granted through Chapter 9 could affect public employee compensation, employees have a direct interest in the Chapter 9 process, particularly prior to filing. Therefore, it is important for those parties to be able to participate in a prefiling confidential neutral evaluation process that could assist parties in reaching a settlement or otherwise lead to a prenegotiated, consensual plan of adjustment and avoid a Chapter 9 filing. (d) Given the connection between state allocations and local budgets, the state has a role in assisting municipalities to address potential insolvency with the goal of averting municipality bankruptcy filings where possible and providing a process designed to make the debt restructuring process in or outside of a Chapter 9 bankruptcy as cost effective and efficient as possible for all participants. (e) California's taxpayers who rely on public safety, senior, recreational, municipal health, library, and other public services, as well as those who own and operate businesses in our communities, deserve every reasonable and appropriate effort that state and local government can make to avoid adverse consequences of Chapter 9 bankruptcy filings, particularly where a neutral evaluation may lead to the avoidance of Chapter 9 filing by an out-of-court resolution of outstanding obligations and disputes. (f) Resolving municipal and state business and financial issues in a timely, fair, and cost-effective manner is an integral part of a successful government and is in the public interest. It has long been recognized that alternative dispute resolution proceedings, like a neutral evaluation, offer an economical, discreet, and expeditious way to resolve potentially devastating situations. (g) Through the neutral evaluation process, the neutral evaluator, a specially trained, neutral third party, can assist the municipality and its creditors and stakeholders to fully explore alternatives, while allowing the interested parties to exchange information in a confidential environment with the assistance and supervision of a neutral evaluator to determine whether the municipality's contractual and financial obligations can be renegotiated on a consensual basis. [*2] SEC. 2. Section 53760 of the Government Code is amended to read: 53760. [D>(a) Except as otherwise provided by statute,<D] [A>A<A] local public entity in this state may file a petition and exercise powers pursuant to applicable federal bankruptcy [D>law.<D] [A>LAW IF EITHER OF THE FOLLOWING APPLY:<A]

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2011 Cal ALS 675, *2; 2011 Cal AB 506; 2011 Cal Stats. ch. 675

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[A>(A)<A] [A>THE LOCAL PUBLIC ENTITY HAS PARTICIPATED IN A NEUTRAL EVALUATION PROCESS PURSUANT TO SECTION 53760.3.<A] [A>(B)<A] [A>THE LOCAL PUBLIC ENTITY DECLARES A FISCAL EMERGENCY AND ADOPTS A RESOLUTION BY A MAJORITY VOTE OF THE GOVERNING BOARD PURSUANT TO SECTION 53760.5.<A] [D>(b) As used in this section, "local public entity" means any county, city, district, public authority, public agency, or other entity, without limitation, that is a "municipality," as defined in paragraph (40) of Section 101 of Title 11 of the United States Code (bankruptcy), or that qualifies as a debtor under any other federal bankruptcy law applicable to local public entities. <D] [*3] SEC. 3. Section 53760.1 is added to the Government Code, to read: 53760.1. As used in this article the following terms have the following meanings: (a) "Chapter 9" means Chapter 9 (commencing with Section 901) of Title 11 of the United States Code. (b) "Creditor" means either of the following: (1) An entity that has a noncontingent claim against a municipality that arose at the time of or before the commencement of the neutral evaluation process and whose claim represents at least five million dollars ($5,000,000) or comprises more than 5 percent of the local public entity's debt or obligations, whichever is less. (2) An entity that would have a noncontingent claim against the municipality upon the rejection of an executory contract or unexpired lease in a Chapter 9 case and whose claim would represent at least five million dollars ($5,000,000) or comprises more than 5 percent of the local public entity's debt or obligations, whichever is less. (c) "Debtor" means a local public entity that may file for bankruptcy under Chapter 9. (d) "Good faith" means participation by a party in the neutral evaluation process with the intent to negotiate toward a resolution of the issues that are the subject of the neutral evaluation process, including the timely provision of complete and accurate information to provide the relevant parties through the neutral evaluation process with sufficient information, in a confidential manner, to negotiate the readjustment of the municipality's debt. (e) "Interested party" means a trustee, a committee of creditors, an affected creditor, an indenture trustee, a pension fund, a bondholder, a union that, under its collective bargaining agreements, has standing to initiate contract or debt restructuring negotiations with the municipality, or a representative selected by an association of retired employees of the public entity who receive income from the public entity convening the neutral evaluation. A local public entity may invite holders of contingent claims to participate as interested parties in the neutral evaluation if the local public entity determines that the contingency is likely to occur and the claim may represent five million dollars ($5,000,000) or comprise more than 5 percent of the local public entity's debt or obligations, whichever is less. (f) "Local public entity" means any county, city, district, public authority, public agency, or other entity, without limitation, that is a municipality as defined in Section 101(40) of Title 11 of the United States Code (bankruptcy), or that qualifies as a debtor under any other federal bankruptcy law applicable to local public entities. For purposes of this article, "local public entity" does not include a school district. (g) "Local public entity representative" means the person or persons designated by the local public agency with authority to make recommendations and to attend the neutral evaluation on behalf of the governing body of the municipality.

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(h) "Neutral evaluation" is a form of alternative dispute resolution that may be known as mandatory mediation. A "neutral evaluator" may also be known as a mediator. [*4] SEC. 4. Section 53760.3 is added to the Government Code, to read: 53760.3. (a) A local public entity may initiate the neutral evaluation process if the local public entity is or likely will become unable to meet its financial obligations as and when those obligations are due or become due and owing. The local public entity shall initiate the neutral evaluation by providing notice by certified mail of a request for neutral evaluation to all interested parties as defined in Section 53760.1. (b) Interested parties shall respond within 10 business days of receipt of notice of the local public entity's request for neutral evaluation. (c) (1) The local public entity and the interested parties agreeing to participate in the neutral evaluation shall, through a mutually agreed upon process, select the neutral evaluator to oversee the neutral evaluation process and facilitate all discussions in an effort to resolve their disputes. (2) If the local public entity and interested parties fail to agree on a neutral evaluator within seven days after the interested parties have responded to the notification sent by the public entity, the public entity shall select five qualified neutral evaluators and provide their names, references, and backgrounds to the participating interested parties. Within three business days, a majority of participating interested parties may strike up to four names from the list. If a majority of participating interested parties strikes four names, the remaining candidate shall be the neutral evaluator. If the majority of participating parties strikes fewer than four names, the local public entity may choose which of the remaining candidates shall be the neutral evaluator. (d) A neutral evaluator shall have experience and training in conflict resolution and alternative dispute resolution and shall meet at least one of the following qualifications: (1) At least 10 years of high-level business or legal practice involving bankruptcy or service as a United States Bankruptcy Judge. (2) Professional experience or training in municipal finance and one or more of the following issue areas: (A) Municipal organization. (B) Municipal debt restructuring. (C) Municipal finance dispute resolution. (D) Chapter 9 bankruptcy. (E) Public finance. (F) Taxation. (G) California constitutional law. (H) California labor law. (I) Federal labor law. (e) The neutral evaluator shall be impartial, objective, independent, and free from prejudice. The neutral evaluator

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shall not act with partiality or prejudice based on any participant's personal characteristics, background, values or beliefs, or performance during the neutral evaluation process. (f) The neutral evaluator shall avoid a conflict of interest or the appearance of a conflict of interest during the neutral evaluation process. The neutral evaluator shall make a reasonable inquiry to determine whether there are any facts that a reasonable individual would consider likely to create a potential or actual conflict of interest. Notwithstanding subdivision (n), if the neutral evaluator is informed of the existence of any facts that a reasonable individual would consider likely to create a potential or actual conflict of interest, the neutral evaluator shall disclose these facts in writing to the local public entity and all interested parties involved in the neutral evaluation. If any party to the neutral evaluation objects to the neutral evaluator, that party shall notify all other parties to the neutral evaluation, including the neutral evaluator, within 15 days of receipt of the notice from the neutral evaluator, the neutral evaluator shall withdraw and a new neutral evaluator shall be selected pursuant to subdivisions (a) and (b) of Section 53761.3. (g) Prior to the neutral evaluation process, the neutral evaluator shall not establish another relationship with any of the parties in a manner that would raise questions about the integrity of the neutral evaluation, except that the neutral evaluator may conduct further neutral evaluations regarding other potential local public entities that may involve some of the same or similar constituents to a prior mediation. (h) The neutral evaluator shall conduct the neutral evaluation process in a manner that promotes voluntary, uncoerced decisionmaking in which each party makes free and informed choices regarding the process and outcome. (i) The neutral evaluator shall not impose a settlement on the parties. The neutral evaluator shall use his or her best efforts to assist the parties to reach a satisfactory resolution of their disputes. Subject to the discretion of the neutral evaluator, the neutral evaluator may make oral or written recommendations for settlement or plan of readjustment to a party privately or to all parties jointly. (j) The neutral evaluator shall inform the local public entity and all parties of the provisions of Chapter 9 relative to other chapters of the bankruptcy codes. This instruction shall highlight the limited authority of United States bankruptcy judges in Chapter 9 such as the lack of flexibility available to judges to reduce or cram down debt repayments and similar efforts not available to reorganize the operations of the city that may be available to a corporate entity. (k) The neutral evaluator may request from the parties documentation and other information that the neutral evaluator believes may be helpful in assisting the parties to address the obligations between them. This documentation may include the status of funds of the local public entity that clearly distinguishes between general funds and special funds, and the proposed plan of readjustment prepared by the local public entity. (l) The neutral evaluator shall provide counsel and guidance to all parties, shall not be a legal representative of any party, and shall not have a fiduciary duty to any party. (m) In the event of a settlement with all interested parties, the neutral evaluator may assist the parties in negotiating a prepetitioned, preagreed plan of readjustment in connection with a potential Chapter 9 filing. (n) If at any time during the neutral evaluation process the local public entity and a majority of the representatives of the interested parties participating in the neutral evaluation wish to remove the neutral evaluator, the local public entity or any interested party may make a request to the other interested parties to remove the neutral evaluator. If the local public entity and the majority of the interested parties agree that the neutral evaluator should be removed, the parties shall select a new neutral evaluator. (o) The local public entity and all interested parties participating in the neutral evaluation process shall negotiate in good faith. (p) The local public entity and interested parties shall provide a representative of each party to attend all neutral

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evaluation sessions. Each representative shall have the authority to settle and resolve disputes or shall be in a position to present any proposed settlement or plan of readjustment to the parties participating in the neutral evaluation. (q) The parties shall maintain the confidentiality of the neutral evaluation process and shall not disclose statements made, information disclosed, or documents prepared or produced, during the neutral evaluation process, at the conclusion of the neutral evaluation process or during any bankruptcy proceeding unless either of the following occur: (1) All persons that conduct or otherwise participate in the neutral evaluation expressly agree in writing, or orally in accordance with Section 1118 of the Evidence Code, to disclosure of the communication, document, or writing. (2) The information is deemed necessary by a judge presiding over a bankruptcy proceeding pursuant to Chapter 9 of Title 11 of the United States Code to determine eligibility of a municipality to proceed with a bankruptcy proceeding pursuant to Section 109(c) of Title 11 of the United States Code. (r) The neutral evaluation established by this process shall not last for more than 60 days following the date the evaluator is selected, unless the local public entity or a majority of participating interested parties elect to extend the process for up to 30 additional days. The neutral evaluation process shall not last for more than 90 days following the date the evaluator is selected unless the local public entity and a majority of the interested parties agree to an extension. (s) The local public entity shall pay 50 percent of the costs of neutral evaluation, including but not limited to the fees of the evaluator, and the creditors shall pay the balance, unless otherwise agreed to by the parties. (t) The neutral evaluation process shall end if any of the following occur: (1) The parties execute an settlement agreement. (2) The parties reach an agreement or proposed plan of readjustment that requires the approval of a bankruptcy judge. (3) The neutral evaluation process has exceeded 60 days following the date the neutral evaluator was selected, the parties have not reached an agreement, and neither the local public entity or a majority of the interested parties elect to extend the neutral evaluation process past the initial 60-day time period. (4) The local public entity initiated the neutral evaluation process pursuant to subdivision (a) and received no responses from interested parties within the time specified in subdivision (b). (5) The fiscal condition of the local public entity deteriorates to the point that a fiscal emergency is declared pursuant to Section 53076.5 and necessitates the need to file a petition and exercise powers pursuant to applicable federal bankruptcy law. (u) If the 60-day time period for neutral evaluation has expired, including any extension of the neutral evaluation past the initial 60-day time period pursuant to subdivision (r), and the neutral evaluation is complete with differences resolved, the neutral evaluation shall be concluded. If the neutral evaluation process does not resolve all pending disputes with creditors the local public entity may file a petition and exercise powers pursuant to applicable federal bankruptcy law if, in the opinion of the governing board of the local public entity, a bankruptcy filing is necessary. [*5] SEC. 5. Section 53760.5 is added to the Government Code, to read: 53760.5. Notwithstanding Section 53760.3, a local public entity may file a petition and exercise powers pursuant to applicable federal bankruptcy law, if the local public entity declares a fiscal emergency and adopts a resolution by a majority vote of the governing board at a noticed public hearing that includes findings that the financial state of the

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local public entity jeopardizes the health, safety, or well-being of the residents of the local public entity's jurisdiction or service area absent the protections of Chapter 9. The resolution shall make findings that the public entity is or will be unable to pay its obligations within the next 60 days. Prior to a declaration of fiscal emergency and adoption of a resolution, the local public entity shall place an item on the agenda of a noticed public hearing on the fiscal condition of the entity to take public comment. The board of supervisors of a county that intends to take action pursuant to this section and places a notice on an agenda regarding a proposed resolution to declare a fiscal emergency may require local agencies with funds invested in the county treasury to provide a five-day notice of withdrawal before the county is required to comply with a request for withdrawal of funds by that local agency. [*6] SEC. 6. Section 53760.7 is added to the Government Code, to read: 53760.7. This article shall not impose any liability or responsibility, in law or equity, upon the state, any department, agency, or other entity of the state, or any officer or employee of the state, for any action taken by any local public entity pursuant to this article, for any violation of the provisions of this article by any local public entity, or for any failure to comply with the provisions of this article by any local public entity. No cause of action against the state, or any department, agency, entity of the state, or any officer or employee of the state acting in their official capacity may be maintained for any activity authorized by this article, or for the act of a local public entity filing under Chapter 9 of Title 11 of the United States Code, including any proceeding following a local public entity's filing. [*7] SEC. 7. The Legislature finds and declares that Section 4 of this act which adds Section 53760.3 to the Government Code, impose a limitation on the public's right of access to the meetings of public bodies or the writings of public officials and agencies within the meaning of Section 3 of Article I of the California Constitution. Pursuant to that constitutional provision, the Legislature makes the following findings to demonstrate the interest protected by this limitation and the need for protecting that interest: To facilitate the process to avoid municipal bankruptcy, it is necessary to provide for secure documents.

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Political feuds, denial drove San Bernardino to bankruptcy


Sun, Jul 15 2012

By Jim Christie and Tori Richards SAN FRANCISCO/SAN BERNARDINO (Reuters) - In August 2010, almost two years before the San Bernardino city council abruptly voted to seek bankruptcy protection, city manager Charles McNeely gave a presentation to the council that became known as "Groundhog Day." McNeely, who has since resigned, warned that the city of 210,000 was facing financial ruin. The sharp fall in housing prices had slashed tax collections even as employee pay and benefit costs spiraled upwards. Years of budgetary gimmicks would come home to roost in the form of a $40 million deficit in the current fiscal year, he predicted. "He used that analogy because the city had every year been doing the same stupid things," Tobin Brinker, a former city council member, said, noting the comparison with the comic movie in which the lead character keeps reliving the same day. McNeely's wake-up alarm, which itself came three years after a management consulting firm had warned of big problems ahead, went unheeded. Instead, local leaders continued to engage in bitter political and legal warfare over the city's biggest expense -- pay and benefits for police officers and firefighters -- and failed to warn local residents and financial markets of the depth of the problems. While San Bernardino was in economic decline even before the Great Recession and took a big hit from the housing bust, the slide toward bankruptcy has as much to do with the city's poisonous politics and the outsized influence of public safety employees as with the broader economy. The city charter pegs police and firefighter pay to the wages offered by comparably sized California cities, a heavy burden for a city suffering a 15 percent unemployment rate. The city calculates that public safety spending now accounts for 73 percent of the general fund budget, with overtime for firefighters cited by McNeely and others as especially burdensome. The city imposed a temporary 10 percent pay cut several years ago, but the firefighters union successfully challenged the move in court and the city now owes its members back pay. Two union-backed candidates won city council seats last year. Pension costs, meanwhile, will reach $25 million this year, double the 2006 level. The firefighters union, for its part, rejects the notion that it is at fault, accusing Mayor Patrick Morris of being "anti-public safety" and questioning the city's budget numbers. "At this point, I don't think anyone should trust any numbers that come out of the city," said Corey Glave, general counsel for the San Bernardino Professional Firefighters. "Right now the firefighters are tired of hearing that it's their fault for everything. They are going to work and do their best job." The political infighting, vividly on display in the days since the city council's surprise July 10 vote to seek bankruptcy protection, even extends to fraud allegations advanced by James Penman, the long-time city attorney. Penman said ahead of the bankruptcy vote that financial documents had been falsified in 13 of the past 16 years, but toned down his claims the next day, telling reporters that "evidence of suggested wrongdoing" had been turned over to unnamed government agencies. Pressed by reporters, the San Bernardino County sheriff's department confirmed an investigation "related to allegations of possible criminal activity within departments of the San Bernardino city government." It is not clear the investigation has to do with budgetary chicanery -- and Penman, who ran twice unsuccessfully for mayor against Morris, is seen as a political ally of the public safety unions. "He needs to put up or shut up," said city councilman Fred Shorett, who voted against the bankruptcy. "He's trying to get everybody's eye off the real issue, which in my view is compensation for police and fire." Matt Wilson, whose accounting firm has audited the city's finances each year since 2007, said he has no idea what Penman is talking about. "We didn't find anything that was misrepresented," he said. "We issued an unqualified opinion each year."

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The interim city manager, Andrea Miller, who took over after McNeely resigned in March, also said she had not "seen anything in that arena that has caused me any concern." A switch in financial software systems has uncovered some accounting errors, she said, but they are insignificant.

She broadly corroborated McNeely's account of how the crisis came about. "We just don't have cash reserves to fund operating costs," she said. A CITY IN DENIAL McNeely, who served three years as San Bernardino city manager after 13 years in the same post in Reno, Nevada, said the writing has been on the wall for years. The city, 65 miles east of Los Angeles, had suffered economic reversals for years, first from the loss of heavy industry decades ago, then from the closure of a big military base in the 1990s, and most recently from a housing boom that went bust. As far back as 2007, a review by consulting firm Management Partners Inc said San Bernardino's finances were at risk because public safety spending was growing faster than city revenue. The review added that the city charter's special treatment for public safety salaries was a form of "autopilot" budgeting that provided "little incentive for labor groups to negotiate at the bargaining table." In his 2010 presentation, McNeely projected that spending would outstrip revenue through 2015. For the current fiscal year, he predicted spending would exceed revenue by $40 million, which is about the difference city officials forecast last week. "I don't know how you could come out of that meeting not understanding we had a serious problem," he said. "I told them, You're headed for trouble, it's a train wreck, you can't keep doing business this way.'" Around the same time, the mayor rang alarm bells in a column in the San Bernardino Sun newspaper, warning of insolvency due to a "long-term lack of fiscal discipline." But what followed were more short-term fixes: spending and pay cuts, modest layoffs, deferred purchases, the tapping of reserves, borrowing from a now-shuttered redevelopment agency, and selling city property. What was really needed was a larger overhaul of budget priorities, said McNeely. "I didn't see them dealing with the issues and I didn't want to be part of that anymore," he said. Former fire chief Mike Conrad said there was no sense of urgency around the fiscal problems. "It was nibbling around the edges," Conrad said. "All of us that were department heads were not surprised the city was headed for a fall." Shorett, the city councilman, says that even now he doubts the council has the will to press city unions for serious pension concessions. Pension deals were actually sweetened as recently as 2007. "You have unions on one side of the table negotiating with people they just helped elect," Shorett said. "Herding cats is not even close to the reality of this place," said Jim Morris, chief of staff to the mayor and also the mayor's son. As recently as April, he said, warnings of a looming financial disaster went unheeded by some in the city council's chambers, where "there's always been this sense of questioning the professional management's numbers." SURPRISE BANKRUPTCY VOTE The city council vote made San Bernardino the third California city to seek bankruptcy protection in the last two months. Because the move caught local residents and municipal bond investors by surprise, it raised concerns that other California cities may have hidden fiscal crises. The city of Stockton, which like San Bernardino has suffered severely from the housing crash, telegraphed its situation months ahead of time, and became the largest U.S. city to file for bankruptcy only after a mediation effort failed to produce an agreement with creditors. Similarly, the problems in the ski resort city of Mammoth Lakes, which faces a nearly $43 million legal judgment that would swamp its budget, were well known long before it filed for bankruptcy. In San Bernardino, the depth of the problems were evident only to insiders. "A year ago it looked like the city had a tough budget in front of them, but it looked like they took tough decisions," said Dick Larkin, director of credit analysis at muni bond broker-dealer HJ Sims. But a financial report for the city council dated July 9, which precipitated the bankruptcy vote, made it clear that little had been solved. City finance officials project that San Bernardino will have about $120 million in general fund revenue for the fiscal year that began on July 1 -- down from a peak of about $140 million in 2007. That leaves it about $45 million short for its commitments. The city also has so little cash on hand it may not be able to meet its contractual and debt obligations as early as this month. The report said spending had outpaced revenue for some years, reserves were depleted, and the old ways to pay off deficit spending were no longer available. And labor costs are projected to rise by $10 million a year in the coming years as concessions expire and contributions to the state pension fund increase. The city also expects to pay more for its employees' pensions and faces rising liability expenses from accidents linked to street and other public works repairs it has postponed, Miller said. "It's a whole series of things coming together," Miller said. "Ultimately the city could not bear all that." (Editing by Jonathan Weber and Leslie Adler)

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Plenty of blame on long road to San Bernardino bankruptcy


Politics, labor and the stalled economy are among factors cited for city's woes.
July 12, 2012 | Phil Willon and Abby Sewell, Los Angeles Times

Cash was so tight in San Bernardino that potholes went unfilled, burned-out streetlights were left untouched and ball fields languished unmowed. That was two years ago, when the City Council learned that San Bernardino's $22-million budget shortfall would jump to $38 million by 2012, sending the city into financial ruin. City leaders slashed the workforce, extracted temporary concessions from labor unions and auctioned off public land. But they failed to heed warnings that those steps weren't nearly enough to address endemic problems in the Inland Empire city. Instead, calls for swift, dramatic action such as raising taxes or outsourcing the police and fire protection fell victim to a noxious political atmosphere that has paralyzed City Hall throughout the economic crisis, according to interviews with past and present city officials. DOCUMENT: San Bernardino bankruptcy report "I told the council two years in a row that, if this continues, we're going to be looking at bankruptcy. I got criticized for bringing up the word 'bankruptcy.' They called it scare tactics," said former City Manager Charles McNeely, who resigned unexpectedly in May. "The politics of that place are just impossible to deal with." McNeely wasn't surprised when the council, facing a $45.8-million budget shortfall in the current fiscal year, voted Tuesday night to seek bankruptcy protection, the third California city to do so in the last month. San Bernardino is broke, without even enough money to pay employees through the summer. The financial turmoil in San Bernardino, while in many ways a product of its own politics, illustrates the devastating effect the economic downturn has had on cities and the basic everyday services they provide, Palmdale City Manager David Childs said. PHOTOS: California cities in bankruptcy "Palmdale has been hit hard, like many cities," said Childs, past president of the International City/County Management Assn. "We'll get through it. But I can really sympathize with them being on the brink. One or two bad things can put a city over the edge. One or two good things can save them." The possibility that city actions could lead to criminal charges was revived Thursday, after the Sheriff'sDepartment said it had launched an investigation several months ago into allegations of "possible criminal activity within departments of the San Bernardino city government." Officials did not elaborate. "The investigation is continuing and details will not be released at this time," the statement said. On Thursday, San Bernardino city leaders were engaged in damage control. "It is important to note that in order to balance the city's budget, deep cuts will have to be made across the board," interim City Manager Andrea Miller said in a statement. "We will continue to provide essential services and are committed to meeting our obligations."The police and fire chiefs of the city held a news conference to reassure residents that public safety will not be compromised. Shortly after taking the job in late 2008, McNeely and his staff prepared a "most likely case" financial projection laying out the mushrooming budget deficits in the years ahead. McNeely said "any seventh-grader" could see the troubles ahead. "I don't think anybody was wasting money; there was never money to waste," he said. "The city's revenue base has just been on the decline for years." Other than Indian gaming, the major employment sources for city residents depend on public funding that has proved volatile during the recession: Cal State San Bernardino and a community hospital, according to a financial report submitted to the council Tuesday. About 80% of the city's taxable parcels are residential, the report said. The city's unemployment rate is above 15%, compared to 10.9% in the state, according to the report. Meanwhile, more than 40% of city residents receive some form of public assistance, according to Redlands economist John Husing, who advises cities and companies throughout the Inland Empire. Without more jobs or rising property values, there is little way to raise revenue, the budget report warned. Many of the city's efforts to kick start the city's tax base, declining by more than $16 million a year, have either stalled or been rejected by the politically divided City Council, McNeely said. San Bernardino's economic development agency paid $13 million for the abandoned Carousel Mall in 2011 after private efforts failed to transform the vacant shopping center into a hip spot for retail and downtown housing. The council rejected tax increases, saying that residents were already feeling the financial pinch, and shot down proposals to install downtown parking meters or have the Police Department run its own impound lot.

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Two years ago, Husing told city leaders to consider dismantling the city's police and fire departments and instead contract with the county sheriff and fire agencies. Public safety accounts for nearly 75% of the city's general fund budget. "The costs for police and fire have tended to crowd everything else out," Husing said. "They immediately started attacking the idea. It just shows how powerful those unions have been in that community." Police union President Steve Turner said officers have done more than their share to help bail out the city, agreeing to a temporary 10% cut in compensation. He discounted the escalating employee pension costs, which are expected to increase from $6.5 million to $7.5 million this fiscal year, as a major contributor to the city's financial woes. "Public pensions are not what's breaking the bank in this city," he said. "It's the mismanagement. Spending money like there's wheelbarrows of it." Councilwoman Wendy McCammack said slashing the Police Department or turning it over to outside agencies would have been too great a risk. Instead, she said, the council should have eliminated every other "nonessential" program, including many of those favored by Mayor Patrick Morris, with whom McCammack often clashed. "I voted against at least three of the last six budgets and I did so because I did not believe that they were structurally sound. Unfortunately, I was outnumbered by a majority of the council," she said. The political divide in City Hall became evident again this week when City Atty. James Penman, who ran unsuccessfully for mayor against Morris, alleged that budget documents might have been "falsified" to hide the city's financial picture. Penman later said he was unsure if there had been deliberate wrongdoing, but added that he turned the matter over to outside agencies to investigate. The mayor said that he was "stunned" by Penman's statement, saying that he was aware there had been discrepancies between the city's mid-year budget review and audited financial statements, but he characterized it as "sloppy budget analysis." The financial analysis presented to the City Council this week found that the city's general fund balance had been "erroneously stated for the past two fiscal years." In 2011-2012, the report noted, the city's financial staff reported a $2-million surplus. A year-end audit, however, found San Bernardino had a $1.1-million deficit. Miller, the interim city manager, said that even without the inaccurate financial reporting, the city would have faced a budget crisis. "Really it's no one's fault, and yet it's everyone's fault," she said. phil.willon@latimes.com abby.sewell@latimes.com

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October 24, 2012

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Bankruptcy: Report warned of San Bernardino fiscal foolishness


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July 27, 2012 By Tori Richards SAN BERNARDINO Five years before San Bernardino became Californias third city seeking bankruptcy protection in 2012, a 266-page management analysis report warned of dire repercussions if changes werent made that would cut costs and shore up the general fund. But a 2010 follow-up review to those recommendations found that the city had only implemented 34 percent of the needed changes and was still stuck in an antiquated, costly way of doing business. Now transformations will likely be forced upon the city as it grapples with a way to make payroll in two weeks into a $45 million budget shortfall. For the past several years, the council has been presented with false budget numbers showing more money than was actually available, while bills were being paid with restricted reserve funds. I have some ideas how we got to this point, Councilman Rikke Van Johnson said at a meeting last week. We found ourselves in similar position in 1991 and in 2009 when we made some drastic decisions and cuts. In 2005, our tax plateaued, so we were in [a recession] sooner than rest of nation. Officially, the Great Recession began nationally in December 2007. Regardless, those 2009 cuts didnt go far enough to stave off the doom that city officials were warned about in the report issued by Management Partners Inc., a government cost effectiveness consulting firm. As noted previously, the City of San Bernardino fiscal reports and experiences reported by departments indicate that the City already has seen serious shortfalls and will continue to be unable to fund or sustain programs, the report said. Following are items which should solicit concern for the future fiscal condition of the city. In particular, the City lacks designated reserves for several significant liabilities and currently is not keeping track of all reasonably foreseeable future liabilities. The report also stated: San Bernardino has less than one month operations funds in reservethis is considerably lower than most cities.

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The San Bernardino City Council voted last week to declare a fiscal emergency and file for bankruptcy on the heels of Stockton, which filed last month. Stockton has a shortfall of $26 million with a population of 300,000, compared to San Bernardinos 210,000 people. July 2010 June 2010 May 2010 April 2010 March 2010 February 2010 January 2010 December 2009
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San Bernardino has the dubious distinction of the being the poorest city for its population size in the state, second in the nation only to Detroit. But despite this, it had some dubious operating procedures that didnt lend themselves to a city that was counting its pennies rather than engaging in a spending spree, the report found. When the Management Partners report came back, the council had a subcommittee to deal with it, said former Councilman Tobin Brinker. I asked to be on the committee, but instead they chose three other people. They opted to take the low-hanging fruit first that really needed to go. After several discussions with the council, I pushed to be more surgical and make deeper cuts. That didnt happen. Brinker was ousted this year in what he says was a campaign by public safety unions to get another candidate in office who wouldnt push for pension reform.

Report not deep enough


Councilmember Wendy McCammack, who has been in office since 2000, said she questioned whether the city could afford the $250,000 expenditure for the report, then was dismayed at the product because it didnt go deep enough. I voted yes on [commissioning] it because I felt like there were a lot of inefficiencies in city government, she said. But unfortunately the things I asked them to look at they didnt. They did a cursory review instead of an audit that I was looking for. Then the follow-up report cost another $25,000, with an additional $50,000 for a special workshop presentation. What I was looking for was, as an example on the law enforcement side: Are there three secretaries to every supervisor? One supervisor for four people? McCammack said. I thought the Fire Department and Police Department could cut costs with obvious fixes. The report was quietly languishing on the citys website until news of the looming bankruptcy brought waves of public speakers to council meetings, including teacher Roxanne Williams. Here is a 2007 report by Management Partners, who predicted the demise and bankruptcy, Williams said to the council, waving a printout of the report to the packed audience and instructing them on how to locate their own copy. I want to ask the City Council, Why have these recommendations not been implemented? Williams said. Its time for leadership, not finger pointing.

Fragile finances
The report stated something leaders knew even back then: In general, the Citys overall financial position in the general government can be characterized as fragile. And: The financial functions of the City are significantly fragmented. One of the recommendations was to consolidate three finance director positions into one. That was not done and McCammack explains why. One was with the city, another was with the Economic Development Agency and a third was with the Water District, she said. The Water District is a separate fiscal entity and we could not do that. Removing them all and leaving us with the current person at the city who created all these errors was not a good choice. Said said other fixes were not possible with a popular vote because the city, under California law, is a charter city. Still, no one could discount the fact that the report noted a structural imbalance in nine of the past 10 years. The Government Financial Officers Association recommends that governments have a formal policy about the level of undesignated reserves or fund balance, and that at a minimum the balance should be between 5 and 15 percent of regular general fund operating revenues, the report said. Most bond rating agencies want to see at least 10 percent. Another commonly used standard is three months of operating expenses, which is a 25 percent reserve. During the last fiscal year, the City ended with a reserve of slightly over $10 million, approximately 7 percent, but this does not include significant unfunded liabilities.

Other issues
Other issues the report noted:

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* A hiring process that is too cumbersome. Positions have to be justified to two different departments and with extensive paperwork by each. Vacancies are verified by both Human Resources and the city managers Office.

* The city holds municipal elections in off years from the states general primary, which is more expensive because the city must pick up the entire tab. The cost for a consolidated election is $72,000 per race vs. $243,000 for one standalone race. * Janitorial services should be contracted out. The mean hourly wage for the private sector is $11.37 an hour vs. $20.11 for the public sector. This would save $75,000 a year. * A two-year budget should be implemented. * Sworn officers spend an average of 40 to 50 percent of their time on taking reports on cold calls or responding to false alarms. A civilian force of retired officers could do this. * Upper-level police management is conducting officer training, when the duties could be assigned to civilian officers. * Animal control duties could be contracted to the county. * The property transfer tax should be raised to be in line with other similar cities. San Bernardino receives a fraction of other cities 55 cents per $1,000. * City employees are lacking in training and automation is seriously outdated. Former council member Brinker said that, ultimately, political infighting doomed the city and the expensive report they commissioned. It was very frustrating, he said. We were being presented with a stark future of the citys financial future and in the springtime had a beautiful vision of the city of what we all wanted. We couldnt come together. It was very, very clear. They laid it out for us: Bankruptcy is coming and you have to do something.

Tags: bankruptcy, Rikke Van Johnson, San Bernardino, Tobin Brinker, Tori Richards, Wendy McCammack Support CalWatchdog with a donation

Comments(30)

1.

Ted Steele, Janitor says: July 27, 2012 at 8:52 am Pensions only a small issue here..no surprise.

2.

GoneWithTheWind says: July 27, 2012 at 9:04 am I lived in San Bernardino and many of these points are valid but not the cause of their problems. There is a nice city park downtown and if you go there you will see bums, homeless people, people doing drugs, etc. in the middle of the day and into the night. But on the days that various forms of welfare are paid out the park is literally empty. San Bernardino has far too many unproductive people sucking off the public teat. The climate is ideal for laying about in the park smoking pot or crack all year and the political climate is great for those looking for free housing, welfare and free stuff. There arent enough productive tax paying people to support all the free stuff the state, county and city dole out.

3.

Ted Steele, Janitor says: July 27, 2012 at 10:14 am Gone with the wind is sadly correctwelfare reform and closing the border would help- San Berdoo is kind of a dump these days

4.

Ulysses Uhaul says: July 27, 2012 at 10:40 am El Monte East!

5.

Rex the Wonder Dog! says:

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UPDATE 4-Authorities probe San Bernardino, city mulls bankruptcy move


Fri, Jul 13 2012

* City attorney says financial documents falsified for years * Authorities launched investigation months ago * Third California city to seek protection from creditors By Jim Christie July 12 (Reuters) - Authorities are investigating financially troubled San Bernardino, California, where the city council voted this week to approve a bankruptcy filing amid a claim by the city attorney that fraudulent accounting may have contributed to the city's problems. "Several months ago at the request of San Bernardino City officials, the San Bernardino County Sheriff's Department, along with the San Bernardino Police Department and the district attorney's office began an investigation related to allegations of possible criminal activity within departments of the San Bernardino city government," the sheriff's department said in a statement on Thursday. "The investigation is continuing and details will not be released at this time," the statement said. "Updates will be provided as new information becomes available." San Bernardino City Attorney James Penman on Tuesday told the city council that financial documents had been falsified for years. On Wednesday Penman told reporters that "evidence of suggested wrongdoing" had been turned over to unnamed government agencies but declined to give details or elaborate on his comments to the city council. A city spokeswoman could not be reached for comment on the investigation. San Bernardino marks the third time in recent weeks that a city in the most populous U.S. state has opted to seek protection from its creditors. Former city manager Charles McNeely said he had not been contacted by authorities. McNeely, who had warned the city council nearly two years ago that San Bernardino could be headed for bankruptcy unless drastic changes were made to its finances, submitted his resignation in March. "It makes me wonder if it has anything to do with this latest issue," said McNeely, noting that he requested probes while in office into some of the city's operations. The investigation will add to the municipal debt market's confusion about San Bernardino's unexpected vote to proceed toward Chapter 9 bankruptcy, said Dick Larkin, director of credit analysis at municipal bond broker-dealer HJ Sims: "It raises more questions than it answers." Larkin noted municipal debt analysts believed San Bernardino had a handle on its financial problems until Tuesday. Now they're trying to piece together how the city's finances fell apart so abruptly, Larkin said. The city council's vote followed a report by city staff that said the city exhausted its reserves and projected spending would exceed revenue by $45 million in the current fiscal year, which started on July 1. "There's something strange about the whole situation," Larkin said. "Something just doesn't hang right." CITY WEIGHS OPTIONS The council will consider next week whether the city, which has a population of about 210,000 and sits about 65 miles (104 km) east of Los Angeles, will enter into mediation with its creditors or file directly for bankruptcy protection. A California law requires financially distressed municipalities to open talks with creditors as a way to avert a Chapter 9 bankruptcy filing, but negotiations may be skipped by declaring a fiscal emergency. On Monday, the city council will receive an opinion from its legal staff on whether San Bernardino needs to enter into prebankruptcy mediation with its creditors, according to a statement from the city's spokeswoman. City staff members are also preparing a plan to balance San Bernardino's budget that would be presented to a bankruptcy judge in the event of a Chapter 9 filing within the next 30 days, the statement said. "While many measures have been instituted over the last four years to balance the city's budget, our financial situation has continued to decline and that has brought us to a critical point," interim City Manager Andrea Travis-Miller said in the statement.

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She also said that a Chapter 9 filing would allow San Bernardino to provide essential services and restructure its finances.

San Bernardino could join the California communities of Stockton and Mammoth Lakes in bankruptcy court. Stockton, a city of nearly 300,000 in the state's Central Valley, last month became the most populous U.S. city to file for bankruptcy. It failed after three months of talks with its creditors to obtain concessions to close its $26 million budget gap. Mammoth Lakes, a ski resort town of about 8,000 residents, filed for bankruptcy last week due to a nearly $43 million legal judgment against it. Thomson Reuters 2011. All rights reserved. Users may download and print extracts of content from this website for their own personal and non-commercial use only. Republication or redistribution of Thomson Reuters content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters. Thomson Reuters and its logo are registered trademarks or trademarks of the Thomson Reuters group of companies around the world. Thomson Reuters journalists are subject to an Editorial Handbook which requires fair presentation and disclosure of relevant interests. This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to colleagues, clients or customers, use the Reprints tool at the top of any article or visit: www.reutersreprints.com.

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City attorney claims San Bernardino administrators falsified budget information for years
By Steven Cuevas | Jul 12, 2012

David McNew/Getty Images

San Bernardino City Hall on May 14, 2008 in San Bernardino, California.

San Bernardino is still reeling from Tuesday nights city council decision to seek bankruptcy protection for the city. That was hard enough to take. But making it harder is a cryptic accusation by the city attorney that San Bernardino officials have been covering up deep deficits for years by submitting phony budget numbers. The claim by San Bernardino City Attorney James Penman came moments before the city council voted 4-to-2 in favor of seeking Chapter 9 bankruptcy protection. We have now learned that for 13 of the last 16 years, documents presented to the mayor and council were falsified, said Penman. That for 13 of the last 16 years the city was in the red. If true, it would mean city managers, finance officers and staff falsified documents to make the citys books appear balanced. For what gain, Penman wouldnt say. After the meeting, he brushed past reporters. But late yesterday after being inundated with calls from the media, Penman broke his silence. The only thing I will say about that is the following, Penman told a crush of reporters at a hastily scheduled news conference. Any evidence of suspected wrongdoing has been turned over to the appropriate government agencies. Penman would not say if that means the San Bernardino County District Attorney or the FBI. He says the alleged deceit was uncovered during an audit by the interim city manager and her staff. And they were able to obtain documents that we had not been previously able to obtain and those documents were turned over to the appropriate government agencies. Penman was short on specifics. But he did apparently share details with some members of the city council. I feel this city and taxpayers have been duped, hoodwinked, said Councilman John Valdivia at Tuesdays hearing. He took office four months ago, says he believes city staff may have been cooking the books for decades. I think up to 30 years, he said. He abstained from voting on the bankruptcy protection action. Valdivia said that based on what he learned from the city attorney, he couldnt trust the accuracy or integrity of the citys accounting. (Im) very conscientious of some of the individuals who have had their hands in the cookie jar, said Valdivia.

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And I will seek out those individuals and encourage that our city adopt some kind of protections against employees who have misguided this city to the tune of tens of millions of dollars to this city. Valdivia declined to say who he thought bilked San Bernardino taxpayers. Councilman Chas Kelley, who voted against the bankruptcy action, said theres evidence of gross mismanagement if not criminal wrongdoing in the citys finance department. Although some council members saw the numbers didnt add up, the numbers we received in the past were false and perhaps illegal, said Kelley. But what numbers exactly? And how were they manipulated and by whom? Kelley declined to say. When reached by phone after Tuesdays meeting, he referred questions to the city attorney or to San Bernardino Mayor Pat Morris. That statement stunned me, said Morris of Kelley and Penmans allegations. Morriswho took office six years agotold KPCCs Larry Mantle (http://www.scpr.org/programs/airtalk/2012/07/11/27357/reality-check-on-san-bernardinobankruptcy/) that

he has no idea what city attorney Penman or the council members are talking about.

And I think thats a pretty bold statement to make about prior city administrators and finance directors. Morris said he had not seen any evidence of wrongdoing, despite claims by James Penman that hed briefed the city council and the mayor prior to Tuesdays hearing. Morris did say there was a $3 million discrepancy in last years budget. San Bernardinos previous city manager Charles McNeely abruptly resigned after the error came to light. He claims his resignation was spurred by what he called poisonous political divisions between mayors office, the city attorney and the city council. Inland economist John Husing says San Bernardino is run like separate fiefdoms. You have the mayor who has no vote on policy; thats the city council. They set policy, explains Penman. And then you have a city attorney whos a power center in and of himself. And so the result of that has generally been stalemate on any given major issue as a consequence of three power centers that generally have never gotten along. Its not clear if San Bernardinos notoriously bare-knuckled politics are driving the allegations of fiscal corruption - or if something has been uncovered that could make a municipal bankruptcy pale by comparison.

Steven Cuevas, Inland Empire Reporter


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Back to Original Article

San Bernardino seeks bankruptcy protection


San Bernardino, facing the possibility of missing payroll, becomes California's third city in weeks to authorize a bankruptcy filing.
July 10, 2012 | By Phil Willon, Los Angeles Times

San Bernardino on Tuesday became the third California city in less than a month to seek bankruptcy protection, with officials saying the financial situation had become so dire that it could not cover payroll through the summer. The unexpected vote came at the suggestion of the interim city manager, who said the city faces a $46-million deficit and depleted coffers. "We have an immediate cash flow issue," Andrea Miller told the mayor and seven-member City Council. Discuss: How many other California cities face bankruptcy risk? Mayor Patrick Morris called the decision, passed on a 4-2 vote, a "stain" on the city. But he said the only other option was "draconian cuts" to all city services, including the police and fire departments. "It means the bills will be paid," said a dejected Morris, who is not a voting member of the council. The city's fiscal crisis has been years in the making, compounded 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, officials said. Miller told the council that the city faced major deficits for the next five years. The deficits remain even after the city negotiated $10 million in concessions from employees and slashed the workforce 20% over the last four years. The expected bankruptcy for the city of 209,000 residents is certain to heighten concerns about the fiscal forecast for other struggling California cities, which have been slashing jobs and services as tax revenues have declined during the prolonged economic slump. San Bernardino "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. City Atty. James Penman said city budget officials had falsified documents presented to the mayor and council for 13 of the last 16 years, masking the city's deficit spending. "For the last 16 years the budget prepared for the council showed the city was in the black," Penman said, not naming those allegedly responsible. "The mayor and the council were not given accurate documents." Morris was taken aback by the comments, saying this was the first time he has heard of the allegations. City Hall was packed for Tuesday's emergency council meeting, which had been called to discuss San Bernardino's bleak finances. Bankruptcy was expected to be discussed as one option but an actual vote to file was not anticipated. About a dozen residents urged officials to protect services for the underprivileged, libraries and public safety. Kathy Mallon, 57, who has lived in San Bernardino for a decade, blasted the city's elected leaders for allowing the financial crisis to grow unabated and wasting millions of tax dollars on transit projects and other non-essential services. Still, she urged them to do everything possible to avoid filing for bankruptcy. "This is lose, lose, lose all the way around. Residents will suffer. Businesses will suffer and city staff will suffer," Mallon, a member of the city's senior affairs council, said before the vote. "We elected you to handle this, and I do not want to see the outcome decided by a bankruptcy judge who has nothing at stake." With the vote, the council instructed the city attorney to file for Chapter 9 bankruptcy protection, a section of the federal bankruptcy code covering municipalities. Councilwoman Wendy McCammack said San Bernardino had little choice. Miller, the city manager, said that even if the council eliminated all services except for the police department, it would not be enough to pull the city out of its financial tailspin. "Reorganization may be the only way to keep the city of San Bernardino on life support," McCammack said.

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Filing for municipal bankruptcy protection will allow San Bernardino to renegotiate contracts, including those with employees, and stave off creditors while officials restructure the city's finances. Current employee pension obligations, one of the contributors to the city's financial straits, will not be affected, officials said. San Bernardino's tax revenues have declined by as much as $16 million annually over the last few years, primarily because of drops in sales and property taxes. The city joins two others in California Stockton and Mammoth Lakes that have turned to bankruptcy in recent weeks to cope with their financial problems, albeit for different reasons. Stockton, a Central Valley agricultural hub with pockets of entrenched poverty, tried to remake itself during the last decade as a refuge for former San Francisco Bay Area residents. It spent money on a marina, a high-rise hotel and a promenade. They flopped. Residents also got swept up in the boom years, snapping up new tract homes on the city's outskirts. Soon, many of them were empty, victims of the nationwide foreclosure crisis. Stockton has one of the highest foreclosure rates in the country. Tax collection plummeted and the city struggled to pay its debts. It also sized up its labor contracts and declared them unsustainable. Last month after a lengthy period of mediation the Stockton City Council voted to stop bond payments, gut employee health and retirement benefits, and squeak by on a spartan budget. "This is what we must do to get our fiscal house in order and protect the safety and welfare of our citizens," Mayor Ann Johnston said in a statement when the city filed its bankruptcy paperwork. Days later, the High Sierra town of Mammoth Lakes population: 7,700 also filed for bankruptcy. Its plight had little to do with the recession. Officials said the town could not afford to pay a $43-million breach-of-contract judgment in a lawsuit brought by a developer. That amount is nearly three times the size of Mammoth Lakes' annual operating budget. In 1997, the town signed an agreement with Mammoth Lakes Land Acquisition to make improvements to a nearby airport's fixed-base operations. In return, the company would get rights to develop a large hotel project at the airport and an option to buy the land. But in 2007, the town changed its priorities and refused to move forward with the hotel project until some Federal Aviation Administration issues were resolved. The developer then filed suit and won. phil.willon@latimes.com Times staff writer Ashley Powers contributed to this report.

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Bankrupt San Bernardino halts payments to Calpers


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By Tim Reid and Jim Christie Oct 18 (Reuters) - San Bernardino, California, has failed to make more than $6 million in payments to the state's powerful public employee pension fund, heightening speculation of a high-stakes showdown between the fund and other creditors as the city seeks eligibility for bankruptcy protection. Since July 31, the day before San Bernardino declared bankruptcy, the city has failed to make six biweekly employer contribution payments of more than $1 million to the California Public Employees' Retirement System (Calpers), a city spokesperson said. The action taken by San Bernardino is in stark contrast with two other California cities - Vallejo, which emerged from bankruptcy in 2011, and Stockton, which is seeking bankruptcy protection. Both cities decided to keep current on all payments to the pension fund. How San Bernardino deals with its future obligations to Calpers remains to be decided, but even opening the door to negotiating payments to Calpers is significant, said Karol Denniston, a San Francisco lawyer who helped draft California's bankruptcy process law. Calpers is the largest pension system in the United States and serves many Californian cities and counties. It has long argued that pension contributions cannot be touched, even in bankruptcy. "This is a David and Goliath approach of taking it head on," Denniston said, referring to the halted payments. "San Bernardino has taken on Calpers without even filing a motion," she added. Vallejo asked other creditors to renegotiate or reduce their claims, while leaving Calpers untouched. Wall Street bondholders and insurers are already challenging Stockton's eligibility to file for Chapter 9 bankruptcy because it has avoided any potential clash with Calpers when it filed for bankruptcy. Wall Street has also signaled that it intends to fight Calpers' historical primacy as a creditor in the San Bernardino case, with bond underwriters gearing up to file challenges to the bankruptcy next week. A Calpers official confirmed the missed payments. Of the unpaid portion, $1.2 of that has been deemed delinquent because of the amount of time that has elapsed since that payment came due, the official added. A spokesperson for San Bernardino said the failed payments to Calpers are "one of a number of obligations that the city has deferred due to our dire cashflow situation in order to keep making payroll to our employees and to keep paying for those materials and services that are most critical to our continued operations while the city works through its financial crisis." "Those deferred payments will then become one of the obligations we will have to deal with later," the spokesperson added. The city says it hopes to make the deferred payments part of a negotiated plan with Calpers that "can be added to future payments over an agreed-upon number of years." San Bernardino is the third California city to seek bankruptcy protection this year, following Stockton and Mammoth Lakes. The city of 210,000, 60 miles east of Los Angeles, lists Calpers as its biggest creditor, with unfunded pension obligations totaling $143.3 million. Calpers says it uses a different calculation method and pegs the debt at $319.5 million. Its late payments to Calpers was first reported by Debtwire. The outcome of how Calpers and bondholders are treated as creditors in Stockton and San Bernardino's bankruptcies, and whether Calpers receives preferential treatment, will have broad implications for local governments around the country that are struggling to balance their budgets amid soaring employee retirement costs. Follow us on Twitter @ReutersLegal | Like us on Facebook

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PROOF OF SERVICE OF DOCUMENT


I am over the age of 18 and not a party to this bankruptcy case or adversary proceeding. My business address is: Hayes & Cunningham, LLP, 5925 Kearny Villa Road, Suite 201, San Diego, CA 92123

A true and correct copy of the foregoing document entitled DECLARATION OF CHRISTOPHER H. CONTI IN SUPPORT OF SAN BERNARDINO PUBLIC EMPLOYEES ASSOCIATIONS OBJECTION TO DEBTOR CITY OF SAN BERNARDINOS PETITION AND STATEMENT OF QUALIFICATION UNDER TITLE 11 U.S.C. SECTION 109(c) will be served or was served (a) on the judge in chambers in the form and manner required by LBR 5005-2(d); and (b) in the manner stated below: 1. TO BE SERVED BY THE COURT VIA NOTICE OF ELECTRONIC FILING (NEF): Pursuant to controlling General Orders and LBR, the foregoing document will be served by the court via NEF and hyperlink to the document. On October 24, 2012, I checked the CM/ECF docket for this bankruptcy case or adversary proceeding and determined that the following persons are on the Electronic Mail Notice List to receive NEF transmission at the email addresses stated below: Service information continued on attached page 2. SERVED BY UNITED STATES MAIL: On October 24, 2012, I served the following persons and/or entities at the last known addresses in this bankruptcy case or adversary proceeding by placing a true and correct copy thereof in a sealed envelope in the United States mail, first class, postage prepaid, and addressed as follows. Listing the judge here constitutes a declaration that mailing to the judge will be completed no later than 24 hours after the document is filed. DEBTOR City of San Bernardino, California City Hall 300 North D Street San Bernardino, CA 92418 Service information continued on attached page 3. SERVED BY PERSONAL DELIVERY, OVERNIGHT MAIL, FACSIMILE TRANSMISSION OR EMAIL (state method for each person or entity served): Pursuant to F.R.Civ.P. 5 and/or controlling LBR, on October 24, 2012, I served the following persons and/or entities by personal delivery, overnight mail service, or (for those who consented in writing to such service method), by facsimile transmission and/or email as follows. Listing the judge here constitutes a declaration that personal delivery on, or overnight mail to, the judge will be completed no later than 24 hours after the document is filed. Via Overnight Delivery Honorable Meredith A. Jury United States Bankruptcy Court Central District of California 3420 Twelfth Street, Suite 325 / Courtroom 301 Riverside, CA 92501-3819 Service information continued on attached page I declare under penalty of perjury under the laws of the United States that the foregoing is true and correct.

October 24, 2012


Date

Stephanie Kierig
Printed Name

/s/ Stephanie Kierig


Signature

This form is mandatory. It has been approved for use by the United States Bankruptcy Court for the Central District of California. June 2012

F 9013-3.1.PROOF.SERVICE

Case 6:12-bk-28006-MJ

Doc 204 Filed 10/24/12 Entered 10/24/12 14:48:15 Main Document Page 44 of 45

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1. TO BE SERVED BY THE COURT VIA NOTICE OF ELECTRONIC FILING (NEF): Jerrold Abeles Franklin C. Adams abeles.jerry@arentfox.com franklin.adams@bbklaw.com; Arthur.johnston@bbklaw.com; lisa.spencer@bbklaw.com; bknotices@bbklaw.com Joseph M. Adams jadams@lawjma.com Andrew K. Alper aalper@frandzel.com; efiling@frandzel.com; ekidder@frandzel.com Thomas V. Askounis taskounis@askounisdarcy.com Anthony Bisconti tbisconti@bmkattorneys.com Jeffrey E. Bjork jbjork@sidley.com Sarah C. Boone sboone@marshackhays.com; ecfmarshackhays@gmail.com J. Scott Bovitz bovitz@bovitz-spitzer.com Jeffrey W. Broker jbroker@brokerlaw.biz Deana M. Brown dbrown@milbank.com Michael J. Bujold Michael.J.Bujold@usdoj.gov Christopher H. Conti chc@sdlaborlaw.com; sak@sdlaborlaw.com Christina M. Craige ccraige@sidley.com Alex Darcy adarcy@askounisdarcy.com Susan S. Davis sdavis@coxcastle.com Robert H. Dewberry Robert.dewberry@dewlaw.net Todd J. Dressel dressel@chapman.com; lubecki@chapman.com Chrysta L. Elliott elliottc@ballardspahr.com; manthiek@ballardspahr.com Scott Ewing contact@omnimgt.com; sewing@omnimgt.com Paul R. Glassman pglassman@sycr.com David M. Goodrich dgoodrich@marshackhays.com Everett L. Green Everett.l.green@usdoj.gov Chad V. Haes chaes@marshackhays.com; ecfmarshackhays@gmail.com James A. Hayes jhayes@cwlawyers.com M. Jonathan Hayes jhayes@hayesbklaw.com; roksana@hayesbklaw.com; Carolyn@hayesbklaw.com; Elizabeth@hayesbklaw.com D. Edward Hays ehays@marshackhays.com; ecfmarshackhays@gmail.com Eric M. Heller eric.m.heller@irscounsel.treas.gov Bonnie M. Holcomb bonnie.holcomb@doj.ca.gov Whitman L. Holt wholt@ktbslaw.com Michelle C. Hribar mch@sdlaborlaw.com Steven J. Katzman SKatzman@bmkattorneys.com Jane Kespradit jane.kespradit@limruger.com; amy.lee@limruger.com Mette H. Kurth kurth.mette@arentfox.com Michael B. Lubic michael.lubic@klgates.com Richard A. Marshack rmarshack@marshackhays.com; lbergini@marshackhays.com; ecfmarshackhays@gmail.com Gregory A. Martin gmartin@winston.com David J. McCarty dmccarty@sheppardmullin.com; pibsen@sheppardmullin.com Reed M. Mercado rmercado@shheppardmullin.com Aron M. Oliner roliner@duanemorris.com Scott H. Olson solson@seyfarth.com Dean G. Rallis drallis@sulmeyerlaw.com Christopher O. Rivas crivas@reedsmith.com Kenneth N. Russak krussak@frandzel.com; efiling@frandzel.com; dmoore@frandzel.com Gregory M. Salvato gsalvato@salvatolawoffices.com; calendar@salvatolawoffices.com Mark C. Schnitzer mschnitzer@rhlaw.com; mschnitzer@verizon.net Benjamin Seigel bseigel@buchalter.com; IFS_filing@buchalter.com Diane S. Shaw diane.shaw@doj.ca.gov Jason D. Strabo jstrabo@mwe.com; losangelestrialdocket@mwe.com Matthew J. Troy matthew.troy@usdoj.gov United States Trustee (RS) ustpregion16.rs.ecf@usdoj.gov
This form is mandatory. It has been approved for use by the United States Bankruptcy Court for the Central District of California. June 2012

F 9013-3.1.PROOF.SERVICE

Case 6:12-bk-28006-MJ

Doc 204 Filed 10/24/12 Entered 10/24/12 14:48:15 Main Document Page 45 of 45

Desc

Anne A. Uyeda Annie Verdries Brian D. Wesley Kirsten A. Roe Worley

auyeda@bmkattorneys.com verdries@lbbslaw.com brian.wesley@doj.ca.gov kworley@wthf.com; bcordova@wthf.com

This form is mandatory. It has been approved for use by the United States Bankruptcy Court for the Central District of California. June 2012

F 9013-3.1.PROOF.SERVICE

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