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San Bernardinom, a small Californian city, is the third city in the state forced to opt for bankruptcy in the last few weeks. This highlights the fact that the economic crisis is not over yet.
The elected officials of the 210,000 people in the city have authorized their city’s attorney to seek federal bankruptcy protection. The city is unable to pay the vendors, although a lot of measures have been taken like selling assets or cutting spending, and opting for bankruptcy has been the only possible solution.
The city is facing a budget shortfall of $45 million. City officials said the problem is weak property and sales tax revenue combined with escalating pensions and a loss of state redevelopment funds.
Stockton, a California city with almost 300,000 people was the first that filed bankruptcy on June 29. The second one was the small city of Mammoth Lakes this July 3.
The California Governor Jerry Brown didn’t want to speculate concerning other possible bankruptcy cases, instead declaring that the real problem is that the country, the states and the cities have lived beyond their means, and he specified that these finances were “means created by a mortgage bubble, by greed, by mistakes, by people not knowing what the hell they were doing, and millions of people have been hurt.”
Jim Spiotto, a Chicago attorney who tracks municipal bankruptcies, said that since Congress added chapter 9 to the bankruptcy code in 1937 to allow municipalities to seek protection, about 640 entities have filed. For Spiotto, bankruptcy is considered a measure of last resort because it carries the danger of increasing the city’s borrowing costs.
Bloomberg explained that in California “five of its 39 Chapter 9 petitions were made by cities or counties: Orange County in 1994, and the cities of Desert Hot Springs in 2001, Vallejo in 2008, and Stockton and Mammoth Lakes in the past month.”
San Bernardino, Stockton and Mammoth Lakes are not the only cases of city bankruptcy around the nation. Cities like Harrisburg, Pennsylvania, Jefferson County, Alabama, and Central Falls, Rhode Island are on the same situation. For these cities bankruptcy is a great problem. The jobs in the public sector are threatened so a lot of people could loose their jobs, and also some vital services like the police could loose economic support and employees and would not be able to fulfill their jobs as they did in the past.
The difference between a company and a city bankruptcy is that companies in this situation have the option to break up, cities do not have this option because this would be unconstitutional, so they must find another solution.