Fox Rothschild LLP

Budget Officials Flee San Bernardino Amid Bankruptcy Chaos

Top officials quit troubled California City

Reuters Online

January 24, 2013

Two key figures in bringing to light San Bernardino’s fiscal problems are expected to begin new jobs in the immediate future. The loss of the top two budget officials at San Bernardino city hall calls into question whether the city has the ability to present a viable plan to satisfy creditors and prove that it should qualify for bankruptcy protection. Such protection safeguards the city from creditor lawsuits until its finances are restructured under the auspices of the court.  

The city's biggest creditor, California's public employee's pension fund, has opposed San Bernardino's quest to seek bankruptcy protection arguing that city officials had provided little financial information since declaring bankruptcy. Without protection the struggling city will likely face multiple lawsuits in state court for unpaid bills, at a time when its officials say it can barely make payroll.

At a court hearing on Dec. 21, the judge overseeing the case ordered the city to provide more financial disclosure to its creditors.

Michael Sweet, an attorney with Fox Rothschild, said if there are not the people on the ground to provide information about the city's finances, then outside experts will have to be hired to tell the court exactly what the city's assets and liabilities are.

"If they lose their staff, it will become very expensive to find the answers to these questions," Sweet said.

The case is emerging as a landmark legal battle because the city has taken the unprecedented step of halting payments to Calpers, America's biggest public pension fund.


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