| RIVERSIDE, CA, March 13
RIVERSIDE, CA, March 13 Bankrupt San Bernardino
and its biggest creditor, the California Public Employees'
Retirement System (Calpers), said on Thursday they had made
substantial progress in recent negotiations over how much the
city will pay the pension fund as part of any bankruptcy
The California city, 75 miles east of Los Angeles, has been
in court-ordered mediation talks with its creditors since late
last year. It filed for bankruptcy in August 2012 with a budget
deficit of $45 million.
The case is being closely watched by creditors. Along with
the bankruptcy of Detroit - the biggest U.S. city ever to seek
Chapter 9 protection - it is likely to set a precedent on
whether retirees or Wall Street bondholders should suffer the
most when a local government goes broke.
In Detroit, the federal judge in charge of that city's
bankruptcy ruled in December that its obligation to pay pensions
in full was not set in stone. Detroit's emergency manager has
put forward a plan to cut the city's pension payments.
San Bernardino took the unprecedented step of halting its
bimonthly employer payments to Calpers, America's largest public
pension fund, for an entire year after filing for bankruptcy
protection. It resumed payments in July 2013. It owes more than
$17 million to Calpers, which has assets of $277 billion.
A key question in San Bernardino's case is whether the city
will seek to reduce its monthly payments to Calpers through
federal bankruptcy protection.
The pension fund opposes San Bernardino's bankruptcy and has
argued that if the city is allowed to cut its pension payments,
other cash-strapped California cities will follow suit and
declare bankruptcy to reduce their pension obligations.
Michael Lubic, an attorney representing Calpers, said in a
hearing on Thursday that significant progress had been made with
the city in mediation talks, which are subject to a judicial gag
order. Paul Glassman, an attorney representing the city, called
it "substantial progress."
Federal judge Meredith Jury, in charge of the case, said
until an agreement between San Bernardino and Calpers has been
reached, it is essentially impossible for other creditors to
know how much of the city's annual budget is left to haggle
An attorney representing a city union described Calpers as
the "800 pound gorilla in the room."
More mediation sessions are set for April. The San
Bernardino case has progressed slowly and it is still not clear
when the city will produce a bankruptcy plan.