calpers

By Ed Mendel
Monday, May 6, 2013

Bankrupt San Bernardino’s new budget restarts CalPERS payments in July after skipping about $13 million in payments this fiscal year. But the next step in the city plan, getting CalPERS to refinance the unpaid bill, is a no-go at this point.

The giant pension fund, alarmed by the unprecedented decision to stop making required pension contributions, is in no mood to give the city an easy out that might tempt other struggling local governments to take the same path.

Restarting general fund pension contributions will not cause the California Public Employees Retirement System to drop its opposition to San Bernardino’s eligibility for bankruptcy, Amy Norris, a CalPERS spokeswoman, said last week.

“San Bernardino currently has $12.3 million outstanding,” said Norris. “California law provides for statutory interest, penalty interest, penalties and costs of collection, all of which are accruing and will continue to accrue until the past due amounts are paid in full.”

San Bernardino, California’s 17th largest city with a population of about 210,000, made an emergency filing for bankruptcy last August. The city said it needed to stay debt collection to have enough cash to meet its monthly payroll.

A 14-month budget approved by the San Bernardino city council last month is based on a “pendency” plan for operating in bankruptcy adopted by the council last November.

Under the plan, the city is not making or “deferring“ $37.4 million in general fund debt payments owed in the current fiscal year that began last July. Nearly half of the amount is for pensions.

The plan defers a $13 million payment to CalPERS, $500,000 to Public Agency Retirement Services (a private firm that provides pension add-ons) and a $3.3 million annual payment on a $50 million pension bond.

Only the CalPERS payments resume in July under the new budget. The sketchy plan for a “fresh start” would “reamortize CalPERS liability over 30 years,” perhaps in a way that “would realize value of $1.3 million per year starting fiscal year 2014.”

San Bernardino elected officials made a trip to Sacramento last fall to meet with CalPERS. The plan issued in November said “discussions with CalPERS actuarial staff are underway.”

The odds that CalPERS eventually will agree to stretch out payments on the city’s previous pension debt or “unfunded liability,” along with the skipped $13 million annual payment, do not look good.

For one thing, a leading reason that CalPERS adopted a rate hike last month of roughly 50 percent over the next seven years is to get to full funding in 30 years, rather than much later under the previous actuarial policy.

And for another: “We have not received a proposal from the city, and we are not going to amortize the unpaid contributions,” a CalPERS spokesman, Joe DeAnda, said last week.

CalPERS unsuccessfully tried to sue San Bernardino in state court to get the pension payments. If the city is ruled eligible for bankruptcy, CalPERS fears that a “plan of adjustment” to cut debt will include the pension payments.

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