* New San Bernardino leaders vow to cut pensions, seek
* Old guard swept from power in recall elections
* New leaders set to enter talks with Calpers, other
creditors, this month
By Tim Reid
SAN BERNARDINO, Calif., Nov 8 Elections in
bankrupt San Bernardino, California this week ejected a heavily
pro-union old guard and ushered in new leaders who say they are
determined to take on California's giant retirement system and
the city's pension costs.
After council elections on Tuesday, the likelihood that San
Bernardino will seek to renegotiate its pension obligations with
the California Public Employees' Retirement System
(Calpers)through the bankruptcy courts have greatly increased,
analysts and new officials say in interviews with Reuters.
With mediated negotiations between the city and its
creditors set to begin later this month, the stakes are high for
Calpers, America's largest public pension fund with assets of
$277 billion. Calpers is San Bernardino's biggest creditor, and
has argued strenuously that pension payments cannot be touched
even in a bankruptcy.
San Bernardino, a city of 212,000 that lies 65 miles east
of Los Angeles, filed for bankruptcy last August and along with
Detroit - the biggest U.S. city to seek Chapter 9 protection -
is likely to set a precedent on whether retirees or Wall Street
bondholders suffer the most when a city goes broke.
The California city of Stockton, by contrast, is set to
settle its bankruptcy case without cutting payments to Calpers.
Calpers has objected to San Bernardino's bankruptcy at every
turn, fearing in part that if the city is allowed to lower
payments to the fund, other cash-strapped cities will follow
After Tuesday's San Bernardino elections, the balance of
power - and the implications for how the city will deal with
Calpers - shifted dramatically, with a new-look council and the
recall of the city attorney, James Penman.
Penman, a long-time local powerbroker with close ties to the
unions, was ousted after 26 years in the post. While Penman had
been circumspect about how the city intended to deal with
Calpers, his successor, local real estate attorney Gary Saenz,
was less so.
"Calpers has to accept the fact of San Bernardino's
situation and look at compromise," Saenz told Reuters.
One of the new council members, Jim Mulvihill, a retired
professor who sits on the city planning commission, told Reuters
that San Bernardino paid too much in pensions to its public
employee union members, especially police and fire.
The pension promises "are obligations we may not be able to
make," he said. "We've know for a long time that pensions were
going to be a problem. We are going to have to sit down with
Scott Beard, a realtor who invested $150,000 of his own
money to fund some of the candidates in Tuesday's elections,
said: "At some point, a federal judge is going to have to tell
Calpers to take 80 cents on the dollar."
One heavily pro-union councilman, Robert Jenkins, lost his
re-election bid two weeks after facing multiple criminal
indictments related to sex ads he allegedly posted on Craigslist
in an alleged plot to exact revenge on a former boyfriend.
His replacement, Benito Barrios, said the main message he
received from voters was that the police and fire unions wielded
too much power and influenced too many members of the city
Most of the new leadership will be sworn in next week,
before three days of closed-door negotiations with creditors
beginning November 25.
"To the extent you now have a council which views pensions
and Calpers more negatively, the negotiations with Calpers will
presumably be more contentious and adversarial," said Michael
Sweet, a San Francisco bankruptcy attorney not involved in the
A Calpers spokesperson, Rosanna Westmoreland, said: "We will
continue to work with whoever the city leadership is to preserve
the pension promises that they have made to their employees."