Bankrupt San Bernardino to halt payments to Calpers, bondholders

SAN BERNARDINO, California Mon Nov 26, 2012 9:23pm EST

A concrete sign marking the city limits for San Bernardino, California is seen July 11, 2012. REUTERS/Alex Gallardo

A concrete sign marking the city limits for San Bernardino, California is seen July 11, 2012.

Credit: Reuters/Alex Gallardo

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SAN BERNARDINO, California (Reuters) - Bankrupt San Bernardino, California, voted on Monday to present a plan to a bankruptcy judge that seeks to balance its budget through deferring payments to the state's public employee pension fund and to the city's bondholders.

San Bernardino's council passed the plan after the judge overseeing its request for bankruptcy protection demanded an orderly budget be filed in court by Friday, November 30.

San Bernardino's "pendency plan," intended as the city's operating budget as it works its way through bankruptcy, is aimed at closing a nearly $46 million budget deficit for the current fiscal year. It also seeks savings through cuts in jobs, pensions and overtime payments.

The plan runs to just 12 pages, in stark contrast to the pendency plan approved in June by Stockton, another California city seeking bankruptcy protection.

Stockton - a city of 292,000 85 miles east of San Francisco - produced a restructuring plan that ran to 790 pages. It came after over 90 days of mediation with the city's creditors.

San Bernardino, a city of 210,000 about 60 miles east of Los Angeles, avoided any discussions with creditors by declaring a fiscal emergency in July.

Its 19-month pendency plan calls for about $26 million in salary and benefit cuts. Another $35 million in savings would come from the deferral and renegotiation of payments to creditors, particularly the powerful state pension fund and holders of nearly $50 million in pension obligation bonds.

San Bernardino has already halted its biweekly $1.2 million payment to the California Public Employees' Retirement System (Calpers) since it filed for bankruptcy protection on August 1.

The city calls the halted payments "deferrals," but under the pendency plan it would not resume any payments to Calpers until the 2013-2014 fiscal year. It also wants to negotiate its debt to Calpers so it can be repaid over 30 years.

Calpers, America's biggest pension fund which serves many cities and counties in California, is San Bernardino's biggest creditor. The city lists its unfunded pension obligations to Calpers at $143.3 million. Calpers says if the city halted its relationship with the fund immediately the debt would be $319.5 million.

Calpers has already formally objected to San Bernardino's bankruptcy filing. While it says it wants to negotiate with the city, it has also said it will ultimately take legal action to recoup any unpaid pension payments.

San Bernardino's move to defer and negotiate payments to Calpers is in stark contrast to Stockton and Vallejo, another California city which emerged from bankruptcy in 2011. Both cities decided to keep current on all payments to the pension fund.

San Bernardino's case sets up a showdown between Calpers and other creditors, particularly Wall Street bondholders and insurers, over how they will be treated in the bankruptcy.

Calpers has long argued that pension contributions cannot be touched, even in bankruptcy. Wall Street has signaled that it intends to fight Calpers' historical primacy as a creditor in the San Bernardino case.

Such a fight could have far-reaching implications for Calpers and other creditors in future municipal bankruptcy proceedings.

Of most immediate concern to the city was getting a budget plan before the bankruptcy judge. She had indicated a frustration with the city's inability to produce a plan to balance its budget, which is why she set Friday's deadline.

Some council members, who object to cuts such as the elimination of 18 vacant positions in the police department, said they did not like the plan but feared that without it the judge might throw out the city's bankruptcy request.

"It's not a perfect plan," said councilman Robert Jenkins, who is affiliated with the city's unions. "But San Bernardino has to get past this next hurdle."

The plan also seeks to cut firefighter overtime payments and to reduce employee pension payments currently paid by the city.

(Reporting by Tim Reid; Editing by Jackie Frank)

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Comments (4)
morbas wrote:
An alternate does exist, Nationalized Income Tax margin-ed above poverty. This would eliminate all other forms of taxation, the offending transaction taxation included. Want to retire the budget deficit use three surtax levels: 0-20K money 0 tax, 20k-200K money 30% tax, 200K-up money 90% tax. The present 2012 income tax rate is less for under 250K income level, is close to 80% at $10M. Compare this to 1960′s top rate of 91.5% at $400K, not so radical is it. Look at this, revenue $6.6Trillion enough to pay for USA Federal+State+Municipality lumped together. I would say, finding our way as Christians to not tax the poorest provides economic relief.

Nov 27, 2012 2:37am EST  --  Report as abuse
bobber1956 wrote:
morbas
Second and more realistic alternative-give it back to Mexic and let the cartels run it.

Nov 27, 2012 9:49am EST  --  Report as abuse
BlueOkie wrote:
And yet they still voted for Obama

Nov 27, 2012 3:26pm EST  --  Report as abuse
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