Pursuing San Bernardino for more than $14 million in overdue pension payments, CalPERS is renewing its challenge to the troubled city’s right to file for bankruptcy protection.
The big pension fund filed an appeal notice Tuesday in U.S. Bankruptcy Court in Riverside, accusing San Bernardino of using the bankruptcy laws to hide from its creditors and avoid paying its debts.
Instead of addressing its problems, “the city simply stopped paying its bills, filed its petition for relief under Chapter 9 of the bankruptcy code ... and used the automatic stay of this court as a means to avoid its ongoing financial obligations,” CalPERS said in its court filing. “In clear violation of California state law, the city immediately stopped making payments to CalPERS.”
The city’s annual bill to CalPERS totals $25 million, and its 2012 bankruptcy filing looms as a potential test case of whether a city can use bankruptcy to slash its pension obligations.
CalPERS tried to have the bankruptcy case dismissed but was rebuffed in August by U.S. Bankruptcy Judge Meredith Jury. Its notice of appeal Tuesday represented the first step in an effort to overturn her ruling. Because the bankruptcy case is still active, CalPERS needs court permission before it can appeal Jury’s ruling to the 9th U.S. Circuit Court of Appeals.
“This issue is of vital importance to our members and their families who rely on us to provide and protect their retirement security," said Anne Stausboll, CalPERS’ chief executive, in a prepared statement.
CalPERS announced last week that it would appeal the judge’s decision, and city officials said they’re prepared.
“We will see them in court,” said City Attorney James Penman. “We believe they’re trying to make an example of us. ... CalPERS doesn’t want to see other cities go down the same road we were forced to go down.”
After halting payments last year, the city resumed payments to the California Public Employees’ Retirement System when the new fiscal year began in July. Still, CalPERS has vowed to recover all the money it’s owed. San Bernardino’s City Council adopted a tentative plan in early October to deal with all creditors, including CalPERS. The plan remains confidential for now, but recent statements by Mayor Pat Morris suggest the city wants to restructure its payments to CalPERS.
In a State of the City address earlier this month, Morris referred to the city’s CalPERS obligations as a “giant whale” dragging the city down financially. He has pledged to support a statewide ballot initiative, led by San Jose’s mayor, that would give California government officials broad powers to reduce pension contributions.
By contrast, the bankrupt city of Stockton has made all its payments to CalPERS and declared that it needs to keep its pension program current in order to retain a stable municipal workforce. A tentative reorganization plan approved by the City Council this month reduces payments to some of Stockton’s bond creditors, but CalPERS is held harmless. The plan requires court approval and depends on voters approving a sales-tax increase at the ballot box in November.