On the day San Bernardino, California, became the second-largest U.S. city to seek bankruptcy protection, the biggest employer opened its largest store and construction was under way on a new distribution center for Amazon.com Inc. (AMZN:US)
A city of 209,000, on the main line of the biggest North American railroad and crossed by three freeways, San Bernardino has emerged as a hub for goods bound for the rest of the U.S. from the ports of Los Angeles and Long Beach about 60 miles (100 kilometers) west.
San Bernardino is the third California city to seek protection from creditors in six weeks. Across the most-populous U.S. state, and the nation, municipalities have been hammered by rising labor costs and falling tax revenue. The city’s growth as a distribution center may help cushion bankruptcy-related cuts in public services.
“There probably isn’t a more important time for us to step up as a corporation than right now,” said Jack H. Brown, the chairman and chief executive officer of Stater Bros. Holdings Inc., the closely held operator of 167 Southern California grocery stores and San Bernardino’s biggest employer.
Companies including Mattel Inc. (MAT:US), Kohler Co. and Lowe’s Cos. (LOW:US) operate regional warehouses near San Bernardino International Airport, a former U.S. Air Force base that closed in 1994. Amazon is building a 900,000-square-foot (83,600 square-meter) “fulfillment center” nearby, one of two planned in the state, to open later this year.
“This is our hometown,” said Brown, native whose office overlooks warehouses and the smog-dimmed San Bernardino Mountains. “We are the home team. We have a corporate responsibility to help the communities we serve.”
Brown’s company sponsors the Route 66 Rendezvous, a classic-car show and street fair that fills 35 blocks of downtown San Bernardino for four days each year.
The company, with about 3,400 workers in the city, moved its headquarters to San Bernardino after outgrowing facilities in another town, said Brown, 74. On Aug. 1, he and other Stater Bros. executives were in Hesperia, a desert community north of San Bernardino, opening a 57,600-square-foot store that is the chain’s largest.
“This city has an advantage,” said economist John Husing, a former San Bernardino resident. “They have available land, zoned industrial” at a lower cost than the Los Angeles metropolitan area.
While businesses that rely on city services may be hurt as the bankruptcy forces cutbacks, Husing said, “I don’t see logistics businesses making any different decisions than they’re making now. Their base is national and international.”
About 27 percent of San Bernardino residents live in poverty compared with 14 percent statewide, according to U.S. Census Bureau data. The area’s jobless rate was near 16 percent in May, when California’s was about 11 percent, U.S. Labor Department figures show.
Brown, whose company has a 2.1 million-square-foot distribution center in San Bernardino, said the movement of goods is “absolutely” the region’s economic future.
“There isn’t a better position, geographically, than here,” he said.
The new airport terminal has ticket counters and baggage carousels, yet lacks any commercial service. Administered by a regional authority that includes San Bernardino County and four cities, the airport was the subject of a county grand jury investigation last year that uncovered mismanagement and financial irregularities.
Much of the undeveloped land near the airport is being marketed by Hillwood Investment Properties, a division of Hillwood Development Co. in Dallas, whose billionaire chairman, Ross Perot Jr., is the son of H. Ross Perot, the 1992 independent presidential candidate.
John Magness, a Hillwood senior vice president overseeing the company’s San Bernardino efforts, encouraged the City Council July 18 to enter bankruptcy.
“No responsible developer including Hillwood will risk its nationwide and worldwide relationships by getting its users to locate in a city with such dire financial challenges unless you take the next important step,” Magness told the council.
He didn’t respond to a telephone call yesterday seeking comment. Media representatives of Mattel, Kohler and Lowe’s didn’t respond to e-mailed messages seeking comment.
Amazon spokeswoman Kelly Cheeseman declined to comment directly on the bankruptcy, while saying the world’s largest online retailer is moving forward with the warehouse and expects to have 1,000 workers.
“We’re excited to bring these jobs to the San Bernardino community,” she said.
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