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City of San Bernardino Given Bankruptcy Protection Despite Calpers Liabilities

By Courier staff

In a ruling that could trigger a chain reaction throughout many cities nationwide, a U.S. Federal Judge this week granted bankruptcy protection to struggling San Bernardino.

This, despite the fact that San Bernardino has been well behind on its payments into the California Public Employees Retirement System (Calpers).

Calpers, a $260 billion fund, is America’s biggest pension fund and the largest creditor of the city.

Judge Meredith Jury of the U.S. Bankruptcy Court for the Central District of California ruled Wednesday that San Bernardino, which suffered a loss of about $2 billion from its county retirement investment fund, was eligible for Chapter 9 bankruptcy protection.

“I am ruling as a matter of law that the city is eligible. I don’t think anyone in this courtroom seriously thought the city was anything but insolvent.” She added, “If Calpers gets all the money they want, under what they say is their statutory right, who isn’t going to get paid? All the employees? How is that going to help Calpers?”

A city must prove that it is insolvent, and also in good standing with creditors, before it can be granted Chapter 9 protection.

According to Reuters, Michael Gearing, an attorney for Calpers, called Jury’s decision a “dangerous precedent” that will encourage other cities to “create a crisis because they have a large number of creditors.” A Calpers spokesperson told Reuters that the organization was looking into possibilities for appeal.

Citing a $46 million deficit, San Bernardino filed for bankruptcy protection in August 2012, saying it had run out of cash to meet its daily obligations.

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