Wall Street has examined the bankrupt city of San Bernardino’s agreement to pay its CalPERS pension bills in full, and it isn’t happy.
Calling the agreement a “credit negative,” Moody’s Investors Service said Monday that the CalPERS deal means San Bernardino probably will pay bondholders less than 100 cents on the dollar. San Bernardino, which filed for bankruptcy two years ago, is expected to file a reorganization plan next spring.
The agreement to keep paying CalPERS in full, disclosed last week, is seen as a reaffirmation that governments in California will keep their pension promises, even in bankruptcy.
San Bernadino is following the lead of Stockton, another bankrupt city. A judge gave Stockton permission to slash its pension contributions, but the city is paying CalPERS everything it’s owed while making less-than-full payments to bondholders. Reducing payments to CalPERS would have resulted in a major reduction in city employees’ retirement benefits.
Noting that pension costs are climbing, Moody’s said San Bernardino and Stockton’s finances will become weaker because of their decisions not to tackle their payments to the California Public Employees’ Retirement System. Similar financial pressure will fall on Vallejo, which went through banruptcy in 2008 without reducing its pension contributions, Moody’s said.