San Bernardino Seal

By Ryan Hagen, The Sun
Posted: 12/08/13, 5:38 PM PST |

SAN BERNARDINO >> A Detroit bankruptcy judge’s decision that pensions can be cut in a bankruptcy case might increase the possibility that the same could be done here.

San Bernardino officials say their obligations to the California Public Employee Retirement System — rising every year and projected to reach 25 percent of the city’s general fund in 10 years — could prevent the city from finding its financial footing unless they’re somehow reduced, but CalPERS has maintained that the state Constitution prevents that possibility.

The same constitutional prohibition — more explicit, in fact — is in Michigan’s Constitution, but U.S. Bankruptcy Judge Steven Rhodes ruled that federal bankruptcy code trumps that and allows Detroit to reduce pensions for its workers.

And although Rhodes’ decision places no legal precedent on his counterpart handling San Bernardino’s bankruptcy case, Judge Meredith Jury, Jury has suggested that she carefully considers analogous decisions.

CalPERS made clear the day of the ruling that it both disagrees with Rhodes’ decision and does not consider it analogous.

The difference, according to a written statement by CalPERS, is that Detroit has a city pension plan and CalPERS is an “arm of the state.”

“The Bankruptcy Code is clear that a federal bankruptcy court may not interfere in the relationship between a state and its municipalities,” the pension giant said. “The ruling in Detroit is not applicable to state public employee pension systems like CalPERS. “The ruling is short-sighted and does not take into account the promises made in exchange for the financial and physical investments that public employees and retirees make in our communities.”

The distinction CalPERS raises may not make a difference, said Karol Denniston of Schiff Hardin in San Francisco, who helped write the California law guiding municipal bankruptcies.

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