Calpers Loses Round in Case Against San Bernardino
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By MICHAEL CORKERY
A U.S. bankruptcy judge dealt a setback to Calpers' efforts to collect millions of dollars in back payments that the bankrupt city of San Bernardino owes the state retirement system.The California Public Employees' Retirement System, the nation's largest public worker pension fund, had sought permission to sue the city in state court to collect on the money that San Bernardino owes. San Bernardino, an impoverished city east of Los Angeles, stopped making payments to Calpers shortly before it filed for Chapter 9 bankruptcy protection.
The ruling from the bench on Friday afternoon by Judge Meredith Jury derailed the pension fund's attempt to get paid first before other creditors, such as the city's bondholders.
Calpers has said that because the pension system is an arm of the California state government it had the right to argue its case against San Bernardino in state court.
According to a Calpers spokesman, who was briefed on the bankruptcy hearing Friday afternoon in Riverside, the judge ruled that the contributions that San Bernardino owes to the pension system may ultimately have to be paid back as part of the city's final reorganization plan.
The legal battle between the city and the pension fund is likely to continue for months. Calpers is still challenging the city's eligibility for bankruptcy, while it continues to pay pension benefits of city employees.
"Today's hearing is one step of many on a journey,'' Calpers spokesman Robert Glazier said in a statement.
A spokesman for the city could not be immediately reached.
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Calpers Loses Round in Case Against San Bernardino
As Cities go bankrupt in California and other states more pension problems will come up. And unfortunately, the Fiscal Cliff if we go over it likely will drive new cities bankrupt in the U.S. unless we only go over the cliff for less than a week or a month. No one really knows the consequences completely of going off the fiscal cliff for different amounts of time like 1 week, 2 weeks or 3 weeks. So, if we go over it, it is uncertain regarding the short and long term consequences of doing that.
Also, you notice Calpers is fighting in the Bankruptcy court to be paid before the Muni and other City Bondholders. This is an important fight anyway you look at it. For example, if the Bondholders get stiffed in regard to both their principal and their interest on their principal (one or the other or both) this will dry up other people's interest in investing in Bonds to some degree. If this happens infrastructure in places like San Bernadino or any other city that doesn't honor it's bondholders will dry up and blow away (metaphorically) because people won't ever buy new bonds in that area if bondholders aren't honored now. So, likely it is in the interests of a city to pay bondholders first in bankruptcy court or all their colleges, schools, dams, sewage treatment plants, and waterworks won't get funded or built in the future and without that some bankrupted cities could become sort of like ghost towns in some ways in regard to infrastructure nationwide.
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