(Reuters) - The city council of San Bernardino, California, will consider next week whether the city will enter into mediation with its creditors or file directly for bankruptcy protection.
A California law requires financially distressed municipalities to open talks with creditors as a way to avert a Chapter 9 bankruptcy filing, but negotiations may be skipped by declaring a fiscal emergency.
The city council of San Bernardino, which has a population of about 210,000 and sits about 65 miles east of Los Angeles, voted on Tuesday to file for bankruptcy, marking the third time in recent weeks that a city in the most populous U.S. state has opted to seek protection from its creditors.
On Monday, the city council will receive an opinion from its legal staff on whether San Bernardino needs to enter into pre-bankruptcy mediation with its creditors, according to a statement from the city's spokeswoman.
City staff are also preparing a plan to balance San Bernardino's budget that would be presented to a bankruptcy judge in the event of a Chapter 9 filing within the next 30 days, the statement said.
"While many measures have been instituted over the last four years to balance the city's budget, our financial situation has continued to decline and that has brought us to a critical point," interim City Manager Andrea Travis-Miller said in the statement, adding that a Chapter 9 filing would allow San Bernardino to provide essential services and restructure its finances.
The vote by the leaders of San Bernardino followed a report by city staff that said the city exhausted its reserves and projected spending would exceed revenue by $45 million in the current fiscal year, which started on July 1.
San Bernardino could join the California communities of Stockton and Mammoth Lakes in bankruptcy court.
Stockton, a city of nearly 300,000 in the state's Central Valley, last month became the most populous U.S. city to file for bankruptcy. It failed after three months of talks with its creditors to obtain concessions to close its $26 million budget gap.
Mammoth Lakes, a ski resort town of about 8,000 residents, filed for bankruptcy last week due to a nearly $43 million legal judgment against it.
(Reporting by Jim Christie; Editing by Andre Grenon and Leslie Adler)