calpersSan Bernardino Seal

Ryan Hagen, Staff Writer
Posted: 12/20/2012 09:36:57 PM PST

After months of trading increasingly sharp legal filings, a pitched battle between San Bernardino and the nation’s largest pension system will take place in bankruptcy court on Friday – with each warning that the other’s victory could mean defeat for the little guy all across the state.

Since filing for bankruptcy Aug. 1, the city has stopped paying its share of required payments to the California Public Employee Retirement System and anticipates deferring those payments until the end of fiscal year 2013 – by which time CalPERS calculates it will owe up to $19 million.

But for CalPERS to give that money as an “involuntary loan” could threaten the soundness of the fund, violating its constitutional duty to protect retirees statewide, said Chief Executive Officer Ann Stausboll.

“The system has to be sound so we can pay the benefits,” Stausboll said. “These people have worked their entire lives, choosing a career in public service. They made life decisions based on that. …

“No one else is standing up for employees.”

That’s the sentiment behind a high-octane push to have bankruptcy Judge Meredith Jury lift a stay that otherwise prevents anyone from suing a city while it’s in bankruptcy court, so CalPERS can ask state courts to force the city to make those payments.

That wouldn’t leave money for essential city functions – or workers to help, city officials say.

“Of course, their version of it would completely annihilate the city, leaving our workers with no jobs,” said Jim Morris, chief of staff and son of San Bernardino Mayor Pat Morris. “The fact is they’re asking for a payment we can’t make. And so if that’s the case, the only way to make it is if we have massive layoffs.”

San Bernardino’s pendency plan – its budget during bankruptcy or until the end of fiscal year 2013-14 – cut $26million as it sought cuts of 30percent to most city departments, but also puts off nearly $35million in payments.

“It’s going to come back to them 100 cents on the dollar, plus interest,” Morris said. “If they’re concerned about the workers, then we really should be working together.”

Meetings between CalPERS and city officials have continued as the legal battle rages, and Stausboll said some compromise is possible.

“We want to be flexible,” she said, and when pressed said it was “conceivable” some plan involving deferred payments could be worked out.

CalPERS does offer – and other cities have used – hardship plans, but much of that depends on reamortizing the payments, meaning they’re made over a longer period of time. For the most part, San Bernardino is amortized for as long a period as is allowed – 30 years – according to David Lamourex, deputy chief actuary for CalPERS.

Meanwhile, both sides accuse the other of exaggerating the damage they would suffer, and both have enlisted allies to the fight.

A group of pension obligation bondholders – the city’s next-largest group of creditors, after CalPERS, who themselves face deferred payments of $3.4million under the city’s plan – hired an outside actuary, Joseph Esuchanko, who declared to the court that San Bernardino’s deferred payments wouldn’t hurt the statewide system.

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