San Bernardino files for Chapter 9 bankruptcy–no longer a “stigma”
Municipal towns across California have been declaring bankruptcy. The most recent to join is San Bernardino—the third city in California to file for bankruptcy in two weeks.
Many municipal towns across California and around the nation are struggling to cover costs—due to a weak economic—could have other municipalities following Stockton and file for bankruptcy.
“This is not the end. This is the beginning…As cities see it can be done and is being done, it will give them the idea to do it,” said Peter Navarro, business professor at University of California Irvine.
Billionaire, Warren Buffet foresees the climb in municipals filing for bankruptcy. In an interview done with In the Loop with Betty Liu Buffet says, “The stigma has probably been reduced when you get very sizeable cities like Stockton or San Bernardino to do it…The very fact they do it makes it more likely.”
Buffet disagrees on Meredith Whitney’s prediction in 2010 about the nation being on the “brink of hundreds of billions of dollars in defaults.” Buffet views the bankruptcy filings as a way to renegotiate.
“I don’t think we’re at the precipice…People will use the threat of bankruptcy to try and negotiate, particularly pension contracts, with their employees.”
San Bernardino City Council voted on Tuesday to file for Chapter 9 bankruptcy after $10 million to $16 million in annual revenue has decreased in recent years as taxable sales dried up and property values went under.
According to the report, despite negotiating tens of millions of dollars in concessions and reducing its workforce by 20% over the past four years, San Bernardino would not have enough cash on hand to meet its obligations.
According to Navarro, bankruptcies are “a sign of short-term strife…But it’s also a sign they’ve hit bottom.”