Bankrupt U.S. city to dispute debt with California pension fund

LOS ANGELES Mon Nov 25, 2013 7:02am EST

A sign advertising bankruptcy filing is seen hanging off a road sign in San Bernardino, California September 11, 2012. REUTERS/Lucy Nicholson

A sign advertising bankruptcy filing is seen hanging off a road sign in San Bernardino, California September 11, 2012.

Credit: Reuters/Lucy Nicholson

Related Topics

LOS ANGELES (Reuters) - Bankrupt San Bernardino, California, enters mediation with its creditors on Monday and will immediately dispute the amount the California Public Employees' Retirement System (Calpers) says the city owes in pension arrears, according to people with knowledge of the city's preparations for the talks.

In what could presage a groundbreaking showdown with America's largest public pension fund, San Bernardino officials will challenge Calpers' calculations and also seek a longer repayment term on the debt.

Calpers says that after San Bernardino halted its employer contribution to the fund for an entire year after filing for bankruptcy protection in August last year - the first time a California city has ever paid less than its full dues - its arrears stand at just under $16.5 million, plus growing interest.

City officials say it is unclear exactly how the arrears figure has been calculated. They say they owe Calpers about $13 million. City officials also want to seek as long a period as possible to repay the deficit, and block potentially onerous interest charges and other fees.

How the city plans to tackle the issue of its arrears to the pension fund, which manages $277 billion in assets, was part of a draft plan for creditors, or "term sheet," handed in October to Meredith Jury, the federal bankruptcy judge overseeing the case.

Judge Jury has ordered details of the term sheet be kept secret. San Bernardino's three days of closed-door negotiations with creditors will be mediated by Nevada bankruptcy Judge Gregg Zive, who was appointed by Judge Jury. It will also be the first time the city has had substantive negotiations with its creditors since it declared bankruptcy on August 1, 2012.

The San Bernardino case is taking a much different course than that of Stockton, another California city that filed for bankruptcy last year. Stockton has kept current on all payments to Calpers and decided not to take on the pension fund in its bankruptcy, while bondholders have agreed to accept substantially reduced repayments.

Calpers has supported Stockton's bankruptcy, but has fought San Bernardino's quest for Chapter 9 protection at every turn. In San Bernardino, the stakes are high for the pension fund because it has strenuously argued that all cities and other local entities must always pay it in full, and on time, even in a bankruptcy.

In San Bernardino's case, like the much larger bankruptcy case in Detroit, the question of whether pension benefits can be cut has become a central issue.

San Bernardino resumed paying Calpers in July, but has reneged on its debt to bondholders and other creditors since August 2012, including the holders of $50 million in pension obligation bonds.

Rosanna Westmoreland, a Calpers spokeswoman, said San Bernardino owes $16,418,628 in arrears. Until last week, Calpers had pegged the figure at $17 million.

"They are slowly paying down what they owe," Westmoreland said. She said interest was only being assessed on payments logged with Calpers to date, and that the city was behind in its payroll reports.

Calls and emails to the city and the city attorney went unanswered.

Calpers administers benefits for more than 3,000 city, state and local agencies, or nearly 3 million people. Many California cities are struggling to meet growing pension costs, which are typically by far their biggest expense.

(Editing by Jonathan Weber and Mohammad Zargham)

FILED UNDER:
We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
Comments (3)
Mylena wrote:
they pensions funds are untouchables. If the City of San Bernardino, did not collect appropiate from workers, just becauses almost 40% of their local workers are no legal in USA, it does not means that Ca must give up or dismiss the collections. Sorry. Seniors first!!!!!!!

Nov 25, 2013 9:31am EST  --  Report as abuse
vision2020 wrote:
@Mylena

If you greedy geezers would have cared about what you were leaving for future generations more than just “what can I get” maybe we wouldn’t be in the situation we are currently in.

Nov 25, 2013 10:23am EST  --  Report as abuse
Mutantone wrote:
so if you have no money you still have to pay, the full amount? just how does that work?

Nov 26, 2013 5:45pm EST  --  Report as abuse
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.