San Bernardino, Calpers fail to reach deal ahead of court date
LOS ANGELES (Reuters) - Negotiations between the bankrupt California city of San Bernardino and the state's public pension fund over the city's unprecedented suspension of pension payments have failed to produce an agreement ahead of a crucial court hearing, officials say.
Senior officials at the California Public Employees Retirement System, the biggest U.S. public pension fund and San Bernardino's biggest creditor, have met with city budget officials and held telephone conversations with the city's mayor over the past several weeks, a Calpers spokesman said.
San Bernardino still has not provided crucial financial information, or proposed a plan for resuming its twice-monthly, $1.2 million payments to the fund, the Calpers spokesman said.
The judge overseeing San Bernardino's request for bankruptcy protection told the city in December that it must provide more financial information to its creditors. Calpers says its efforts to help the city produce the information have produced nothing, setting the stage for a contentious court hearing on February 12.
San Bernardino, a city of 210,000 about 60 miles east of Los Angeles, filed for bankruptcy protection on August 1, citing a $46 million deficit for this fiscal year and little leeway to make day-to-day wage payments.
The court has yet to rule on whether San Bernardino is eligible for Chapter 9 bankruptcy protection. Calpers argues that it is not. In the meantime, all collection actions by creditors are halted.
San Bernardino appears to be struggling with basic day-to-day operations, raising questions about its ability to manage a complex bankruptcy process. The two officials with the most knowledge of the city's finances - city manager Andrea Travis-Miller and budget chief Jason Simpson - have both resigned in recent weeks. Neither responded to calls and emails.
The city has hired an outside consulting firm, Urban Futures, and is paying it nearly $850,000 for help with the bankruptcy and other matters.
No city has ever unilaterally suspended payments to Calpers, which manages pension plans for state government employees and many municipalities and local government agencies around the state.
The bankruptcy could be a test case as to whether the pensions of government workers take precedence over other payments in a municipal bankruptcy - a high-stakes issue for pension plans and their beneficiaries, and for the Wall Street bondholders who lend money to governments.
Should the bankruptcy judge rule that the pension fund not be paid in full in a restructuring of the city's debt, other struggling California cities could be tempted to alter their payments to Calpers.
At the Dec 21 hearing, U.S. Bankruptcy Judge Meredith Jury ruled against an attempt by Calpers to bypass the federal bankruptcy court and collect San Bernardino's pension arrears in state court. But the pension fund's attorneys reserved their right to go to state court anyway, potentially setting up a showdown over whether federal bankruptcy law trumps state law when it comes to government employee pensions.
Calpers's CEO, a senior actuary and another official traveled to San Bernardino on December 20 and met with the city's manager and finance chief to discuss the arrears. Calpers officials say they offered financial experts to help the understaffed debtor sort through its financial records.
Calpers is seeking detailed projections of costs and revenues, and a line-item breakdown of the city's provisional bankruptcy budget plan, which ran to just 12 pages. None of that has been provided, Calpers says.
"Calpers has done everything we can to reach out to leaders in the City of San Bernardino to better understand their financial situation to help with solutions," said Robert Glazier, a Calpers official.
San Bernardino's mayor concedes there is nobody inside the city with the knowledge or expertise to replace the departing city manager and budget chief. He says he is making every effort to replace them.
"They are not lining up at the door of the city to come and work for us," said Fred Shorett, a San Bernardino council member. "Obviously we are facing huge challenges."
(Reporting By Tim Reid; Editing by Jonathan Weber and Leslie Adler)
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