Rising Costs Could Push More Calif. Cities Underwater

July 11, 2012 – In The News
Law360
Just weeks after the city of Stockton, CA filed for Chapter 9 bankruptcy, the city of San Bernardino also decided to file for Chapter 9 protection. Many believe that other California cities will start to follow suit unless they get their retiree medical costs under control. Michael A. Sweet, a partner and member of the firm’s Financial Restructuring and Bankruptcy department, spoke with Law360 about the current situation in San Bernardino.

“I suspect that San Bernardino is struggling with the same things Stockton is struggling with, which have to do with its revenue not meeting expenses,” Sweet said. “Based on what I'm hearing from other cities in the state, these costs are what's hurting cities the most.”

Sweet believes that California cities are going to be watching the Chapter 9 bankruptcy cases closely.

“If Chapter 9 turns out to be an efficient way for cities to restructure their debts, then we may see more Chapter 9s,” Sweet added. “However, bankruptcy is a very expensive proposition, and I still think it's a last resort proposal.”