LOS ANGELES — San Bernardino is working to put bankruptcy in the rear-view mirror as it executes the plan of adjustment.
The city began making distributions to creditors under the plan of adjustment on June 15.
“From the beginning, we understood the time, hard work, sacrifice and commitment it would take for the city to emerge from the bankruptcy process,” San Bernardino Mayor Carey Davis said.
The mayor and City Council will vote today on a $160 million operating budget and a $22.6 million capital improvement budget that begins to rebuild city services by restoring some police positions and upgrading equipment. It will also add Public Works and Parks workers and Community Development staff to bolster economic development efforts.
The city is capitalizing on its improved post-bankruptcy financial status to ratchet up efforts to fill department head positions in Public Works, Housing and Economic Development that remained vacant during the bankruptcy.
U.S. Bankruptcy Judge Meredith Jury approved the plan of adjustment in January ending the long slog through bankruptcy that began July 2012 when the city discovered it had a $45 million deficit and was about to run out of cash.
The city of 216,000 was able to shed $350 million in one-time and ongoing expenditures through the bankruptcy at a cost of about $25 million in legal expenses.
“The city calculates that its plan, which includes shedding 45% of bonded debt and modestly raising revenues, will provide $350 million in savings over 20 years,” Moody’s Investors Service analysts wrote in an April report. “The restructuring will lead to a general fund unallocated cash balance of approximately $9.5 million by fiscal 2023, down from a $360 million deficit the city projected in 2013 for the fiscal years 2013-23.”
Davis declared the process officially over saying the city has come “to the momentous exit from that process.”
The five-year process resulted in the outsourcing of its fire department to the county, contracting out waste removal services and reductions in healthcare benefits for retirees and current employees to lessen the impact on pensions.
“The proceedings guided us through a process of rebuilding and restructuring, and we will continue to rebuild and create systems for successful municipal operations,” Davis said.
Moody’s cast a shadow on the city’s efforts in the April report, however, saying the city still faces hurdles with pensions, public safety and infrastructure.
The city’s bankruptcy maintained a trend of pension obligations faring better than bond debt.
The city’s 45% cut to bonded debt resulted in some unsecured creditors receiving as little as 1% recovery. The holders of $50 million in outstanding pension obligation bonds were among those who received a severe haircut, getting a 40% recovery.
Pension liability remains a large overhang for the city – since it was virtually untouched in the bankruptcy.
“Adjusted net pension liability will remain unchanged at $904 million, a figure that dwarfs the projected bankruptcy savings of approximately $350 million,” Moody’s analysts wrote.
Analysts questioned how the city will meet its infrastructure needs when market access remains questionable in the wake of the bankruptcy.
“Given the steep haircut POB investors took, the city’s ability to access the debt markets without bondholder enhancements remains highly uncertain,” Moody’s analysts wrote.
San Bernardino was able to issue water and sewer revenue bonds a month before its final bankruptcy confirmation hearing.
The department sold $68 million in new money bonds in two sales last year. It also refunded loans of roughly $17 million that were issued through the California Infrastructure and Economic Development Bank in 2002, 2007 and 2012 for economic savings.
The bonds were paid for with water and sewer revenues, which were not included in the bankruptcy.
Moody’s noted that the city has $180 million in deferred street repairs and $130 million in deferred facility repairs and improvements – and the water and sewer revenue bonds “carried a revenue pledge that is highly unlikely to be available to support debt for general capital needs.”