U.S. Bankruptcy Court

U.S. Bankruptcy Court in Riverside. Today, San Bernardino will reveal its bankruptcy exit plan. The city declared bankruptcy in July 2012. (John Valenzuela/ The Sun)

By Ryan Hagen, The Sun
Posted: 05/13/15, 8:27 PM PDT |

SAN BERNARDINO >> City officials say they will release a sweeping bankruptcy exit plan Thursday afternoon and ask the City Council on Monday to commit to changes they say will significantly affect residents, employees and creditors for years to come.

But treatment under the plan — which the city is required to present to U.S. Bankruptcy Judge Meredith Jury by May 30, after which legal battles over its proposals will begin — isn’t equal for all groups, said City Attorney Gary Saenz.

“It treats our citizens much better than bondholders,” Saenz said. “We expect our plan is going to provide for a substantial impairment of those (outside-the-city) groups, all for the purposes of increasing our service levels for our citizens. Each dollar we don’t pay our pension obligation bondholders, we will have a dollar to provide services.”

The city had already telegraphed that approach, saying it would fully pay its obligation to the California Public Employees’ Retirement System in order to retain employees, leading to a lawsuit from the pension obligation bondholders that Saenz said he expects to be followed by more fierce fighting.

Those won’t be the only changes in the plan that might generate resistance. Saenz spoke generally of “increased efficiencies,” but previously the city has said it needs to study the possibility of contracting out fire protection, among other services, and make other “tough choices.”

If a component is included in the plan and approved by the council on Monday, as Saenz expects, the city must follow through, he said.

“We are committed to it as a city,” he said. “If we fail to implement in a significant way… Judge Jury will have jurisdiction to call the city on that and require that we implement.”

However, creditors will have a chance to object to components before the plan is confirmed, a process that took about a year in Stockton’s bankruptcy.

In Detroit, Judge Steven Rhodes ruled in November that Detroit’s bankruptcy restructuring plan was feasible, and it gave the city legal justification to slash more than $7 billion in unsecured liabilities and reinvest $1.4 billion in public services and removing blight over a decade.

It’s that divvying up of the fiscal pie that will be interesting to watch as San Bernardino’s plan is unveiled, said Michael Sweet, a bankruptcy attorney with Fox Rothschild in San Francisco, which is not involved in the San Bernardino case.

For much of the recent past, Sweet noted, the city has already grappled with major issues the plan will likely touch on.

An interim agreement that enables the city to repay CalPERS the roughly $14 million the city owes has already been established.

And the city has already drawn the line with public safety unions, leading to fractious relations over salary contracts. That, despite city officials’ failed attempt — Measure Q, at the ballot box — to rework the way public safety employees are paid in the bankrupt city.
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