And then there were three.
This week, San Bernardino, which faces a budget shortfall of $45 million in the upcoming year, became the third California municipality to seek bankruptcy protection in the past month. Shepherding the city through its potential restructuring will be Paul Glassman of Santa Monica’s Stradling Yocca Carlson & Rauth, who confirmed to The Am Law Daily early Thursday that he has been retained by San Bernardino to handle its bankruptcy-related work.
Glassman, a Stradling Yocca restructuring partner, represented the city of Irvine, California, as well as a subcommittee of other Orange County cities, in 1994 when the county filed for bankruptcy, according to his bio on the firm’s Web site. Glassman referred all questions to San Bernardino city attorney James Penman, who declined to comment.
The move to file for bankruptcy came after interim city manager Andrea Miller and director of finance Jason Simpson released a report earlier this week about San Bernardino’s financial condition, which said that despite attempts to renegotiate employee compensation and identify new sources of revenue, the city of 211,000 located 65 miles east of Los Angeles had “reached a breaking point and faces the reality of deficient cash on hand to meet its contractual and debt obligations due in July 2012.” Losses of between $10 million and $16 million over the past few years as a result of falling sales tax revenues and declining property values, plus the expiration of reduced compensation measures that occurred on July 1, would result in a $45 million gap in the city’s budget for the 201213 fiscal year, the report said.
At a meeting Tuesday, Miller told members of the San Bernardino City Council that the city had only $150,000 in the bank and had barely covered its June 15 payroll, according to the Los Angeles Times. It is unusual for a city to carry such a paltry bank balance before seriously considering bankruptcy, according to Lynnette Warman, a Hunton & Williams partner who has handled Chapter 9 bankruptcies for both municipalities and creditors but is not involved in the San Bernardino case. “The city kept this all fairly quiet,” Warman says.
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