On the heels of Stockton, California filing for bankruptcy on June 28, the San Bernardino City Council authorized the city to file for bankruptcy at its meeting on July 10. San Bernardino is a city of 209,000 residents, and was one of the fastest growing metropolitan areas during the housing boom, as a "suburb" of Los Angeles (it is 60 miles from L.A.). It is now a regular among the top five cities in the U.S. in foreclosures (along with Stockton), reaching #1 in the April 2012 RealtyTrac survey, and has an official unemployment rate of 11.9%. The city lost an additional 3,100 jobs in construction from May 2011 to May 2012.
Council members voted to file for bankruptcy after being presented with a devastating picture of local finances: a $46 million deficit; cash to pay for city services will run out in August; the city reserve funds are tapped out; and the bankrupt state government raided the city's redevelopment fund, which had been functioning as an emergency source of funds. With a 20% cut already in the public workforce, the council decided on bankruptcy, rather than more "draconian cuts." A filing of a Chapter 9 bankruptcy will take place within 30 days.
There are several other mid-size California cities facing similar decisions, while Oakland announced they are firing Goldman Sachs, and not paying, on an "interest-rate insurance fund," to avoid bankruptcy. The state itself faces a $15-20 billion deficit, though the 2012-2013 budget just completed was "balanced," based on an expected $12 billion deficit. As has happened with every budget since the Schwarzenegger years, the revenue estimates used for budgetary purposes are greatly inflated, leading to repeated mid-year "adjustments". Most of these adjustments have come out of the hides of the state's poor, unemployed, underemployed, sick and elderly, with children especially being hit by cuts in health care and education.
With the "big payoff" from capital gains taxes on the Facebook IPO no longer happening as the stock tanked after the IPO, a rare sign of good sense among investors — Gov. Brown is now desperately pushing a referendum for increased taxes on the November ballot. Even were he to get his tax increase, the state will continue to face systemic and catastrophic shortfalls, unless there is a revival of California's once "golden" physical economy. Without the LaRouche Plan of Glass Steagall, national credit, and NAWAPA XXI, expect that Stockton and San Bernardino are just the first of many.