By Ed Mendel
Tuesday, November 12, 2013

CalPERS made two court filings last month after the San Bernardino city council approved a confidential draft of a plan to exit bankruptcy, as if stepping up opposition in reaction to something in the plan.

But a spokeswoman for the big pension fund said the filings are unrelated to the city’s plan or “term sheet.” As directed by a federal bankruptcy judge, the plan is a starting point for closed-door mediation and has not been revealed to the public.

The two CalPERS court filings continue an all-out legal battle triggered when San Bernardino did the unprecedented: skipped employer pension contributions last fiscal year, running up a tab of about $17 million, before resuming payments in July.

The giant California Public Employees Retirement System wants its more than 3,000 local government employers to know that withholding pension contributions is a no-go zone, not an option if they struggle financially.

San Bernardino, in danger of not making payroll, made an emergency bankruptcy filing in August last year, staying debt collection. The city stopped about $30 million in various payments, roughly half owed to CalPERS.

In response, CalPERS became the lone opponent of San Bernardino’s eligibility for bankruptcy, unsuccessfully attempted to sue the city in state court, and accused the city of creating a crisis and withholding key financial information.

“I don’t believe anyone in this courtroom seriously thought the city was not insolvent,” U.S. Bankruptcy Judge Meredith Jury said while ruling San Bernardino eligible for bankruptcy last August.

Two weeks after the San Bernardino city council approved the term sheet last month CalPERS asked to appeal the eligibility ruling: “Never has a bankruptcy court set such a low bar for a municipal debtor to enter the doors of a bankruptcy court.”

And a week after that, CalPERS filed a brief in support of an appeal by the state Department of Finance and state Controller of the judge’s ruling on $15 million in city tax revenue.

The judge blocked a state attempt to withhold $15 million in sales and property taxes. San Bernardino had not returned a similar amount of unspent housing funds after the state shut down local redevelopment agencies.

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