October 21, 2012 – San Bernardino, the bankrupt California city facing an inquiry by the U.S. Securities and Exchange Commission, masked its growing deficits by using funds meant for sewers, roads and construction to cover current expenses, according to city records. In the year ended June 30, San Bernardino added $33 million to its $177.7 million general fund from a payroll trust fund and accounts designated for sewer-line maintenance, storm-drain constriction and other purposes, exhausting most of the special funds, according to a city budget document. Now, as the city of 209,000 about 60 miles (100 kilometers) east of Los Angeles faces the scrutiny of a bankruptcy judge and the SEC, it’s $1 million in default on pension bonds issued in 2005 and late on $5.3 million owed to the California Public Employees’ Retirement System, of which $1.2 million is delinquent. The city’s broke because its leaders resorted to accounting tricks, rather than reduce spending as the recession drove down property taxes and sales levies, City Treasurer David Kennedy said. “I didn’t say we were careening toward bankruptcy, but I told them we were hemorrhaging cash and needed to get our budget in order,” Kennedy said in an interview, referring to the mayor and City Council. “It was hard to ignore that, but they pretty much did.” The SEC’s “informal inquiry” was revealed in an Oct. 11 letter from Robert H. Conrrad, a senior enforcement lawyer in Los Angeles, to City Attorney James Penman. The letter asked the city to preserve documents and data on bonds, underwriters, audits and financial information presented to elected officials.