CalPERS and bankrupt San Bernardino have reached an “interim agreement” that could head off a major legal battle over bankruptcy debts and the ironclad status of public pensions, the city reported.
In a filing late Tuesday in U.S. Bankruptcy Court in Riverside, lawyers for the city said CalPERS and San Bernardino “reached an interim agreement regarding various items that will help form the basis for a plan of adjustment.”
The filing didn’t go into detail on the agreement.
Along with Stockton’s bankruptcy, the San Bernardino case has loomed as a major legal test of whether public pension benefits can be reduced by a bankrupt city. San Bernardino withheld payments for several months after filing for bankruptcy protection in 2012. Even though it has resumed paying CalPERS, it still owes the pension fund about $13.5 million in back payments, plus interest and penalties.
For the past several months, CalPERS and San Bernardino have engaged in court-supervised mediation. In Tuesday’s court filing, city lawyers offered an update on the CalPERS situation and indicated they’re now turning much of their attention to trying to hammer out a deal with the city’s labor unions.
“Having recently concluded its plan negotiations with the California Public Employees’ Retirement System … the city, its officers and legal counsel are now fully engaged in” talks with the police and fire unions, the lawyers wrote.
CalPERS spokesman Brad Pacheco said “the details of the agreement remain confidential.” Lawyers for San Bernardino couldn’t be reached for comment.
Normally, the city pays CalPERS about $24 million a year.
The twin municipal bankruptcies have put CalPERS on the defensive. Stockton, unlike San Bernardino, has made all of its CalPERS payments and put together a plan that scaled back some of its bond debt but left its pension system untouched. However, one of Stockton’s creditors, Franklin Templeton Investments, is challenging the city’s plan and has said pension contributions should be curtailed to free up cash for bond repayments. A bankruptcy judge in Sacramento is expected to rule on the issue next month.
CalPERS has said pensions are constitutionally protected and cities aren’t allowed to reduce their contributions. If they do, CalPERS says, their pension plans will be “terminated” and employees and retirees will see a significant reduction in benefits – 60 percent in Stockton’s case, according to testimony in the city’s recent bankruptcy trial. Stockton officials said police, firefighters and others would quit in droves if that happened, leaving the city essentially ungovernable.
Until recently, public pensions have been seen as unbreakable. But last fall, a judge in Detroit’s bankruptcy ruled that the city could reduce its pension obligations. CalPERS said the Detroit case doesn’t affect a state-run system like California’s.
Call The Bee’s Dale Kasler, (916) 321-1066. Follow him on Twitter @dakasler.