Three Law Agencies Investigate Calif. City Finances

July 13, 2012
Three law-enforcement agencies are reviewing allegations of wrongdoing related to San Bernardino finances just two days after city leaders announced they would file for bankruptcy protection.

SAN BERNARDINO - Three law-enforcement agencies are reviewing allegations of wrongdoing related to city finances, a San Bernardino County sheriff's spokeswoman said Thursday, just two days after city leaders announced they would file for bankruptcy protection.

The Sheriff's Department, District Attorney's Office and the San Bernardino Police Department are collaborating on the investigation, authorities said Thursday.

"Several months ago, at the request of San Bernardino city officials, the San Bernardino County Sheriff's Department, along with the San Bernardino Police Department and the District Attorney's Office began an investigation related to allegations of possible criminal activity within departments of the San Bernardino city government," sheriff's spokeswoman Cynthia Bachman said in a statement Thursday.

City Attorney James F. Penman said earlier this week that he reported evidence that city officials may have falsified 13 of 16 years of budgets - claiming there was a surplus when there was a deficit - to "the appropriate government agencies." He did not say what those agencies were.

In announcing their intent to file for Chapter 9 bankruptcy protection, city leaders said San Bernardino has a $45 million deficit and faces the potential of not paying employees by an Aug. 15 payroll deadline.

Penman, like representatives of each of the investigating agencies, declined to elaborate on what was being probed Thursday.

Instead, the frequent critic of Mayor Pat Morris' policies said now was the time to get behind Morris.

"It's a time that we need to come together if we're going to deal with this fiscal crisis," he said. "The mayor is the leader of the city of San Bernardino, and we all need to unite behind him, and we need to give him our support."

Penman said all groups - the mayor, City Council, police, fire and other employees - shared a strong sense of community and desire to serve San Bernardino.

"We are going to get through this," he said.

The mayor was at a town-hall meeting late Thursday, after Penman made his remarks, and was unable to respond, said Jim Morris, his son and chief of staff.

About $25 million of the city's $45 million deficit comes from deferred funding to internal service funds, according to a June 26 budget document recommending the city prepare for bankruptcy.

Those funds, which have cash deficits in the millions of dollars, include retiree health, workers' compensation and general liability, according to the document.

The remainder of the deficit comes from flat revenues, the expiration of employee contracts that included 10 percent salary concessions, increased benefit costs and the state's abolition of redevelopment agencies, said the document, written by Acting City Manager Andrea Travis-Miller and Finance Director Jason Simpson.

The looming bankruptcy prompted the bond-rating agency Standard & Poor's this week to lower its rating on San Bernardino's lease-revenue bonds from BBB+ to CC.

According to Li Yang, who prepared the credit analysis, "the city has depleted a substantial amount of its operating cash, which could impair its ability to meet its ongoing financial obligations."

Meanwhile, other local agencies moved this week to make it clear that their own investment pools and budgets were not affected by the looming bankruptcy.

"It must be made clear that the county of San Bernardino and the city of San Bernardino are completely separate legal and fiscal entities with separately elected governing bodies, budgets, and finances. Although the city serves as the county seat, the city contains only 10.3percent of the countywide population," said a county statement.

The statement, sent by county spokesman David Wert, added that the county adopted a balanced fiscal year 2012-13 budget.

That budget included limited relationships with the city of San Bernardino "with little or no fiscal impact."

"The county will monitor the situation in the city for any effects related to those relationships," the statement said. "The county does not anticipate any material impacts to its budget as a result of the city's action."

Meanwhile, Fitch credit-rating service reported that the pending bankruptcy had no effect on San Bernardino County's investment pool, which is managed by the county Treasurer's Office on behalf of the county, local school districts and other special districts. The city of San Bernardino has not been participating in the pool.

Staff Writer Ryan Carter contributed to this report.

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