By Tim Reid and Peter Henderson
LOS ANGELES | Wed Nov 28, 2012 4:31am EST
(Reuters) – America’s biggest public pension moved aggressively against the bankrupt city of San Bernardino, California, on Tuesday night over the city’s decision to halt payments to the fund.
The move laid bare a high-stakes battle shaping up between Wall Street and state pension funds over how they are treated when cities run out of money.
The powerful California Public Employees’ Retirement System (Calpers) filed a legal motion declaring its intention to sue San Bernardino for millions of dollars in pension arrears, a move that the fund has never before had to make in a municipal bankruptcy.
San Bernardino, a city of 210,000 about 60 miles east of Los Angeles, filed for bankruptcy protection on August 1. Since then, it has halted its bi-weekly, $1.2 million payment to Calpers, saying it wants to defer any payments to the fund until fiscal year 2013-2014. Calpers says the city is already $6.9 million in arrears since August 1.
The San Bernardino bankruptcy is fast emerging as a precedent-setting case over how creditors, especially Wall Street bondholders and insurers, are treated in a municipal bankruptcy, because never before has a city seeking bankruptcy halted payments to Calpers or threatened its historical primacy as a creditor.
Under Californian state law, the contract between Calpers and debtor cities is viewed as inviolate and has been treated as such by state courts. Unlike Calpers, other creditors have historically been forced to renegotiate or forgive debt to debtor cities.
The Californian city of Stockton, also seeking bankruptcy protection, decided to keep current on all payments to Calpers, as did the city of Vallejo, which emerged from bankruptcy in 2011.
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CEO Devilreaux: “Mayor Pat, you had better start thinking outside the box on this BK process, otherwise Jimmy is going to go through with his plan to dissolve the City, and give the whole mess to me at the County. Didn’t you guys get the news, Rod is taking early retirement instead of having to take over the whole City PD too!”
Mayor Pat: “You know what Jimmy told me to do, he said we should blame it all on the consultants… you know, to try and cop-a-plea with the judge that we were all just being misinformed by our consultants, so it wasn’t really our fault.”
CEO Devilreaux: “Its always worked for me in the past, but what did the consultants say to Jimmy anyway, about taking the BK action in the first place?”
Mayor Pat: “Mr. Penman won’t disclose how that went down to the Mayor and Common Council, he says it’s attorney-client privileged information… but I thought we were the client here?”
CEO Devilreaux: “I knew Jimmy was going to be difficult after he met with the Hoopster to talk about the SBSD taking over for the SBPD. That’s why I just played the trump card and had County Counsel take action so the County can get in line with CalPERS in Federal Court as creditors. Bet Jimmy thought we forgot and forgave all those Mid-Valley landfill tipping fees that the City hasn’t been paying… think again, it’s all about the debt!”
Calipers will do the most logical thing in this situation, decrease pension benefits paid to current retirees, by the shortage % and let who ever wants to sue them go right ahead.
No way are they going to take it in the shorts for San Berdo and shouldn’t.
Anonymous #2:
Long before CALPERS does the “most logical thing in this situation,” or takes any “logical” step, their attorneys are going to churn out fees at an unconsible rate while objecting to everything they possible can.
The county attorneys will be more than happy to respond, with their fee meter on full blast.
Attorneys win, retirees lose.
All eyes are on the City of San Bernardino. Public pensions throughout the nation are on very shaky financial ground. See www. pensiontsunami.com CALPERS has $500 billion plus of unfunded pension liabilities and where is the money going to come from to pay for it. Californians pay the highest taxes and more taxes are coming in 2013. In the very near future, cities, counties and states will default on their debt and taxpayers will refused to pay for public pension promises.