Bump in the San Bernardino Road to Bankruptcy Exit?

 As we have noted and explored in this eBlog, the diverse ways in which those states which authorize municipalities to file for municipal bankruptcy can have distinct repercussions. In Detroit and Central Falls, Rhode Island, for instance, the state enabling laws provide for the appointment of a receiver or emergency manager—effectively suspending or preempting the roles of such a city or county’s elected leaders, as happened in both cities. In contrast, in California, Alabama, and some other states, elected officials remain in charge. Thus, we observe different processes and different kinds of challenges. The issue, moreover, is, to some extent, at the heart of discussions in the U.S. House of Representatives and U.S. Senate this month, as the two bodies near House Speaker Paul Ryan’s deadline at the end of this month to act on some mechanism to address the nearing insolvency of the U.S. territory of Puerto Rico.

Jeopardizing a City’s Plan of Debt Adjustment? The San Bernardino City Council Monday night voted 4-3 to delay making a final decision to confirm the city’s plan to annex the city’s fire service into a county fire protection district and add a parcel tax, potentially undercutting a critical provision of its proposed plan of debt adjustment and undercutting its ability to exit from the longest municipal bankruptcy in U.S. history. The Council could revisit the issue at its March 21 meeting; however, the very official action to debate and delay approval clearly creates doubts with regard to whether there will be majority support. Rejection of the deal would mark a significant setback for the city’s efforts to exit chapter 9 municipal bankruptcy: its mark a reversal of the 4-3 vote last August to approve the change to consolidate firefighting responsibility in San Bernardino County and impose a $148 FY16-17 parcel tax, with the subsequent annual increases of up to 3 percent annually. Moreover, because of last Fall’s elections, the makeup of the City Council when it votes in March will be altered: current Councilmember Rikke Van Johnson, who has been a strong advocate of the annexation plan, will have retired: he will be replaced by newly-elected Councilwoman Bessine Littlefield Richard, who has yet to take a public position on the critical issue. Moreover, Councilman Jim Mulvihill, who offered the motion for delay, just re-elected last month, raised his own questions with regard to the viability and benefits of the agreement at the hearing, noting: “This is the first time we’re seeing these specific numbers — it’s a whole new ballgame…We’re being sold a bill of goods…From the public’s point of view, they save no money.” Councilmember Mulvihill said, in doing the math, the projected savings of $7 million to $8 million in the first year of the annexation would be essentially equivalent to the $7.4 million tax parcel owners in the city would have to start paying—and that the agreement would last “in perpetuity.” (Albeit, it is hard to conceive of an annexation that would be other than in perpetuity.)

In response, the city’s consultant on the issue, Andrew Belknap of Management Partners, testified that annexation, by its nature, is “in perpetuity,” although, he told the Mayor and Council that a vote could be taken to un-annex. Mr. Belknap added that the numbers before the Council were the same ones the Local Agency Formation Commission used when it last January had unanimously approved the plan—a plan under which San Bernardino parcel owners would have to pay a new tax, but under which San Bernardino’s general fund would save at least $7 million annually—even as it offered the city’s citizens and homeowners improved fire and emergency medical services. In addition, San Bernardino City Attorney Gary Saenz warned that a Council decision to renege on the plan—a plan incorporated in the city’s plan of debt adjustment, adopted on a 6-1 vote by the Council last May—could well jeopardize its ability to emerge from municipal bankruptcy, advising Councilmembers: “First, if this plan passes, the everyday constituent will be safer,” referring to a saved step in the dispatch process, new money for equipment maintenance, and use of a county fire station in addition to the municipally operated stations, and, as he put it: “Second, this will be cheaper… (and) we’ll apply the savings to other types of services, including police, so they will have improved police and fire services.” Councilman John Valdivia, however, claimed the annexation plan would have the opposite effect: “Politics will be removed and annihilated, which is really what the mayor and some here want. Response times will be longer, taxes will be higher, and fire stations in minority communities are still going to be shuttered and closed.” In response, Mr. Saenz said that neither he, the city attorney, nor Councilmembers were fire protection experts, but that those who were — including San Bernardino’s fire chief and fire union — favored the plan. Councilman Fred Shorett, who has been a long-time advocate of outsourcing the city’s Fire Department, said the plan was important. Residents would vote down the new tax if they had the chance, he said, but they also want service the city cannot afford—adding: “They can’t have a free lunch.” he said.

The issue could be further roiled were more than 50 percent of the city’s registered voters—a very high bar—were to return a letter saying they are protesting the decision. An election will be called if protest is received from at least 25 percent, but less than 50 percent of the registered voters, or if 25 percent to 100 percent of the number of landowners — who own at least 25 percent of the total land value — submit written protest.

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