Thursday, July 12, 2012

Bankrupt Cali Cities and Mediation

With 15 percent unemployment since the recession and a foreclosure rate among the state's highest, San Bernardino is likely to become the third California city to file for bankruptcy this year. Stockton filed for bankruptcy June 28 after months of mediation apparently failed to yield an agreement between the city and its creditors, including bondholders and labor unions. Mammoth Lakes, a small ski resort town, filed for bankruptcy last week due to a $43 million legal judgment against it. Unlike Stockton and Mammoth Lakes, however, whose financial problems were well-known before those cities filed for bankruptcy, San Bernardino Mayor Patrick Morris claims he didn't know about the awful financial situation until a few weeks ago. Under a California law passed this year, cities must hire a third-party mediator to negotiate with employee unions and creditors before filing for Chapter 9 bankruptcy protection. However, cities can avoid the mediation process if they instead declare a fiscal emergency, which San Bernardino plans to do. The U.S. Bankruptcy Judge overseeing Stockton's bankruptcy, Elizabeth Perris, just appointed her judicial colleague, Christopher Klein, to mediate that case and ordered the city and its creditors to meet next month. On the city's first day in court last week, Judge Klein said that for the Stockton bankruptcy to be successful, the city will need to propose "a consensual plan of adjustment." See stories at - and