By Tim Reid
LOS ANGELES, April 11 Bankrupt San Bernardino
will resume paying into the state pension fund on July 1, but
the California city will continue to renege on other debts
including payments to bondholders, according to a new budget
released late Thursday.
Nearly a year after it halted contributions to America's
biggest pension fund, San Bernardino will resume payments to
Calpers at the start of the new fiscal year - but continue to
not pay other creditors, according to the budget.
San Bernardino will not make interest and principal payments
on $50 million in pension bonds issued in 2005, according to the
new budget. The city council on Monday will review the budget, a
blueprint for how the city proposes to manage its finances since
declaring bankruptcy last August.
San Bernardino's decision to resume its $1.2 million,
bimonthly employer contributions to Calpers while continuing to
defer pension bond debt will intensify the battle between the
pension fund and Wall Street bondholders.
The case has been bogged down in disputes about the scope of
documents the city must provide to its creditors. Unlike
Stockton, where a judge approved the city for bankruptcy last
week, a decision on San Bernardino's eligibility for Chapter 9
protection still appears some way off.
Both San Bernardino and Stockton are considered test cases
in the titanic battle over whether municipal bondholders or
current and retired employees will absorb most of the pain when
a state or local government goes broke.
Calpers, which manages $256 billion in assets, is San
Bernardino's biggest creditor, with the holders of its $50
million in pension bonds its second-biggest creditor.
Calpers is opposing San Bernardino's quest for bankruptcy,
the only city to have ever halted payments to the fund. Stockton
kept current on its payments to Calpers and the pension fund did
not oppose that city's bid for Chapter 9 protection.
There is no mention in the budget of how the city intends to
repay its arrears to Calpers, and other creditors.
In a letter attached to the new financial documents,
officials say roughly $35 million has been "deferred" by the
city - that is, not paid to creditors.
After the city said in court on Tuesday that it hoped to
restart payments to Calpers, the pension fund told Reuters that
such a move would be a "smart business decision."
The budget message was sober in the sacrifices it says the
city will continue to have to make in order to bring its fiscal
house in order.
While the new budget predicts slightly more revenues than
expenditures for the city's general fund by the end of this
fiscal year - by about $2.3 million - it states that at the end
of June this year, despite salary reductions, staff cutbacks and
other drastic cost-cutting measures, the general fund will still
be nearly $7 million in the red.
"The City's overall cash balance and liquidity is the City's
biggest challenge," the budget document states. It calls the
city's cash-on-hand position "extremely serious."