SAN BERNARDINO - Officials here and throughout the state often divide time in two: pre-petition and post-petition.

The technical tone reflects the legal focus that has consumed the city since it petitioned U.S. Bankruptcy Court in Riverside for Chapter 9 protection, but the division is apparent in more than the flood of court documents that mention it.

Only days before the City Council voted July 10 to move toward bankruptcy, the public first saw a report warning that bankruptcy may be the only option, although officials had repeatedly referred to the possibility over the past several years.

Many of the council members, who voted 4-2 with one abstention to pursue bankruptcy, described it as the hardest vote of their lives.

"It's a stain on our city," Mayor Pat Morris said that night.

Since then, more than 180 employees have retired, been laid off or taken another job, according to acting City Manager Andrea Travis-Miller. Many more layoffs have been authorized but not yet carried out because of civil service rules, and employees say morale has plummeted as many of their colleagues flee before they can be laid off or have their compensation reduced.

The $26 million in cuts that are part of the pendency plan, intended as a budget during bankruptcy proceedings, promise to shutter the city's three branch libraries - leaving only Norman F. Feldheym Central Library - and have meant cutbacks to the Police Department and Fire Department that many residents worry will leave them less safe, among other reductions.


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But it's the estimated $34.9million in deferred payments needed for the plan to be "balanced" that have grabbed attention from powerful players including the nation's largest pension fund, the California Public Employee Retirement System.

"Everyone is watching California, and California is watching San Bernardino," said Ron Oliner, a lawyer representing the San Bernardino Police Officers Association, in arguing that the city's plan to delay millions of dollars in payments to CalPERS would hurt public workers throughout the state and so should be rejected. San Bernardino won that fight - Judge Meredith Jury ruled CalPERS can't sue the city for the $13 million to $19 million in missed payments, which she thought would be a "death knell" for the city because it has so little cash available - but the city still faces a long and uncertain path to financial security.

Both CalPERS and the San Bernardino Public Employees Association, which represents middle managers, are challenging whether the city is even eligible for bankruptcy protection. Jury suggested she would allow creditors to gather evidence from about the last year to support CalPERS' contention that the bankruptcy is a "sham" intended to buy time.

Even producing that information is a struggle, say city officials, who have provided thousands of documents but say they have a severely understaffed Finance Department because of the bankruptcy. Five or six hires are planned for January, if the City Council approves.

If CalPERS succeeds in convincing Jury that the bankruptcy was not filed in good faith or that the city doesn't have "a desire to effect a plan to adjust its debts," the city will be kicked out of bankruptcy court.

That would leave creditors free to seize leased property - including most city vehicles and office items - and money from the city's bank accounts to cover debts it hasn't been paying.

"We would be forced to dissolve," said City Attorney James F. Penman. "The county would take over the city."

There are several legal hurdles that could complicate disincorporation, if it comes to that - which all sides say they want to avoid.

CalPERS has maintained that it wants to cooperate with the city, but can't continue what it calls an involuntary loan every two weeks as San Bernardino doesn't send the employer portion of its payment.

CalPERS continues to pay San Bernardino retirees every month.

"We are confident that the court will recognize the priority of our members and the obligations owed to them," spokesman Robert Glazier wrote in a statement Dec. 21. "Most importantly, we must not lose sight of those people who could be most impacted - the public employees and retirees who worked hard over their careers to serve the City of San Bernardino."

The next court appearance is scheduled for January, with many estimating the city will remain in bankruptcy court for about two years.


Contact Ryan via email, by phone at 909-386-3916, or on Twitter @sbcitynow.