San Bernardino Allowed to Join Stockton, Detroit in Bankruptcy
The story of the failing city reaches chapter nine
Despite huge resistance from the California Public Employees' Retirement System (CalPERS), a judge ruled Thursday evening that she would grant San Bernardino bankruptcy protection.
From The Sun in San Bernardino:
The California Public Employees' Retirement System had objected that the city didn't qualify, charging among other things that the city was "languishing" in bankruptcy without meeting the Chapter 9 prerequisite of wanting to form a plan to balance its budget longterm.
But bankruptcy Judge Meredith Jury took a dim view of that, saying there was no evidence the city didn't intend to move forward — and that she didn't see any alternatives for the city except bankruptcy and dissolving.
"If they (CalPERS) got all the money that they want under what they say is their contract and statutory right, who isn't going to get paid?" Jury asked, rhetorically. "All the employees. I don't know. How does that help CalPERS, if the employees don't get paid?
The representative for CalPERS pointed out that it's their job to protect the pension fund and worried about other cities simply rushing to declare bankruptcy without trying to fix their financial problems.
Their lawyer might have a stronger case if public employee unions didn't sue to block every single effort at pension reform and declare that pension benefits cannot categorically ever be reduced, ever. CalPERS' clients are one of the main reasons why California cities are finding themselves unable to fix their financial problems.
Not only does San Bernardino struggle with pension obligations (at least $143 million in unfunded pension obligations to CalPERS), but it has a special law in its city charter that requires that public safety employees be paid wages competitive with the averages of similar employees of nearby cities with similar populations in Southern California. San Bernardino is the poorest of those cities. When it comes to median incomes, the only metropolitan area worse is Detroit, according to census numbers. So the combination of the inability to rein in pension costs and the inability to control public safety salaries creates a significant budget challenge.
And so, interestingly, CalPERS' lawyer might not actually be wrong that San Bernardino doesn't have a real plan to balance its budget, but CalPERS' clients played a major role in creating the situation.