Catch up: San Bernardino
SAN BERNARDINO - CalPERS, the city's largest creditor, filed a motion late Tuesday night that surprised few observers but could scuttle the budget plan the City Council passed Monday.
The California Public Employee Retirement System is asking the U.S. Bankruptcy Court in Riverside to lift the stay created by the city's bankruptcy filing.
That would allow CalPERS to sue in state court for the employer portion of pension contributions San Bernardino has stopped paying since filing for bankruptcy - more than $5 million already, and projected to be nearly another $13 million by the end of fiscal year 2012-13, when the city planned to begin its payments again.
That's part of $34 million in deferred payments, on top of $26 million in cuts, approved in a so-called pendency plan the council passed to deal with a general fund deficit pegged at $45.8million.
The city would pay CalPERS if it could, City Attorney James F. Penman said Wednesday.
"I don't think that CalPERS understands how truly insolvent we are," Penman said.
"We do not have that money available. We still struggle to make payroll, keep the lights on, keep the phones on, keep the fire trucks and police trucks fueled."
Mayor Pat Morris said earlier Wednesday he was "not about to speculate" on what would happen if CalPERS' motion succeeded, but he downplayed the motion's significance.
"There are those who would like to make this into high drama. It's not," he said. "We consider ourselves to be partners with CalPERS. We are very much wed in our futures, so we want to make this whole again."
CalPERS attorneys gave the city "ample warning" that such a filing would be coming, Morris said.
Timely payments from San Bernardino do make a difference to the system because pensions are funded largely by investment earnings, CalPERS lawyers Michael Gearin, Michael Lubic and Brett Bisset write in the filing.
The lawyers also argue that state laws specifically require CalPERS payments, putting it ahead of other contractual obligations, and say that pension payments are part of wages.
"Thus, at the same time that the city is telling its employees that it intends to continue providing them their current benefits, it has failed to make the contributions to CalPERS that must be made in order for those pension benefits to be provided," they said. "By failing to timely make the required contributions, the city is undermining the actuarial soundness of the pension plan and threatening its employees' ability to obtain their vested contractual right to pension benefits."
Other California cities facing bankruptcy have put payments to CalPERS ahead of most other obligations, something other creditors challenged. Compton, which was also considering bankruptcy, stopped making its pension payments this year but restarted after pressure from CalPERS.
San Bernardino's bankruptcy case is not just a battle among the city and its creditors, but a case that could influence the future of pensions and bankruptcy law, said Karol Denniston, a municipal restructuring and bankruptcy attorney in San Francisco.
"It's something that hasn't happened before - we've never had this kind of conflict," said Denniston, who said CalPERS' right to payments is clear in state law, but bankruptcy cases are federal. "It's something that's going to require an analysis of the intersection of state and federal law.
CalPERS is setting the table for...constitutional issues that could come up in the Supreme Court."
The city will prepare a written response to CalPERS' challenge in the coming weeks, and Bankruptcy Judge Meredith Jury is expected to make a decision on Dec. 21.