CALPERS Fiercely Opposing San Bernardino Bankruptcy Eligibility
The California Public Employees’ Retirement System (Calpers) has stated it would appeal an August court ruling granting Chapter 9 bankruptcy protection to the city of San Bernardino, California.
Calpers fiercely opposed San Bernardino’s bankruptcy since the Southern California city asked for protection from its creditors in 2012. The city suffering from soaring employee salary and pension costs, said it had run out of cash to meet its daily obligations. In August, a U.S. bankruptcy judge ruled San Bernardino eligible for Chapter 9 bankruptcy protection. Calpers said in a press release Thursday that it would appeal “on the grounds that the city did not consider alternatives to filing for Chapter 9 protection, did not file its bankruptcy petition in good faith, and has not provided reliable financial information.”
San Bernardino, beset by infighting among local officials, has struggled to keep its finances in order as officials including the city manager and the city finance director resigned in the wake of the bankruptcy filing.
The case is one of several municipal bankruptcies that are expected to set important precedents about whether municipal bondholders or pensioners get priority when a city goes broke. It should be noted that the highest level of obligations cities do end up having are their pension obligations. So it would be natural for Calpers to fight tooth and nail in the case of San Bernardino so as to avoid a precedence and make clear to all other cities contemplating suspending payments to Calpers. The intimidation tactick is working already. In Vallejo, Vice Mayor Stephanie Gomes refused talking on calpers and called it “a giant behemoth.” Vallejo took the easy way out but never fixed its fundamental problems.
The California city of Stockton, which is also in bankruptcy, has continued to make all payments to Calpers, and the pension fund has not opposed that city’s eligibility for bankruptcy. When San Bernardino was found eligible for bankruptcy in August, U.S. Bankruptcy Judge Meredith Jury said: “I don’t think anyone in this courtroom seriously thought the city was anything but insolvent.”