L.A. NOW
Southern California — this just in
November 2, 2012 | 4:05 pm

Credit rating agency Moody’s said in a report released Friday that San Bernardino’s and Compton’s disputes with CalPERS, the state’s public employee pension fund, could have ramifications for other cities and their creditors.

“These situations could open the door for courts to decide whether pension payments can be legally suspended or modified if a California local government is in financial distress and/or bankruptcy,” Moody’s wrote in its weekly credit outlook.

On one hand, the report warned that if the financially troubled cities succeed in delaying or reducing their CalPERS payments, it “could incentivize other financially distressed cities to seek concessions from all creditors,” including bond holders.

On the other hand, if cities are not required to make full pension payments while in bankruptcy, the report said, more might be left for other creditors, including bond holders.

San Bernardino, facing a $46-million general fund deficit, filed for Chapter 9 bankruptcy protection Aug. 1 and stopped making the employer portion of its pension payments. As of Friday, the city owed nearly $5 million to the pension fund, CalPERS spokeswoman Amy Norris said.

CalPERS filed an objection to San Bernardino’s bankruptcy, suggesting it was simply a maneuver to avoid creditors and that the city had not developed a plan to pay its expenses in the future.

“It appears that the City is financing its postpetition operating deficit by incurring postpetition obligations and simply not paying its postpetition bills,” the filing said. It accused the city of “digging a hole that gets deeper every day.”

The city said deferring pension fund payments was necessary to allow the city to pay employees and “keep providing the most basic and critical services to the community.”

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