Bankrupt Cities

San Bernardino Allowed to Join Stockton, Detroit in Bankruptcy

The story of the failing city reaches chapter nine


Where's the "For Sale" sign?
Credit: Amerique, Wikimedia Commons

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.

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  1. The representative for CalPERS pointed out that it’s their job to protect the pension fund…

    And for some reason that wasn’t also the judge’s sole concern. When there’s no money, something has to give.

    1. Maybe the state can hit up Phil Mickelson and his friends for a “loan”.

    2. I find that comment from calPERS to be disingenuous when their directors make investment decisions based on politics and “social justice” indead of fiscal benefit.

      1. The market is just racist!! How dare you tell them that you can’t have social justice and making money.

        1. I don’t have to – their empty bank balances will do it for me.

          1. The thing is CalPERS doesn’t give a shit about this pension fund. They are perfectly willing to let these members lose everything in order to avoid setting a precedent that can be used in other cases. So they will never back down. The smallest poorest town must pay just as much as the richest town lest the rich ones start using the poor ones as some kind of an example.

            And yet, their members no doubt think the Union is looking out for them.

    3. If they were so concerned about the pension fund, maybe they shouldn’t have demanded pensions that would bankrupt their employer. It doesn’t make much sense to bankrupt the fund.

      I would say they are more concerned about stealing than they are about any fund.

  2. cannot categorically ever be reduced, ever

    So, never ever?

    1. Never ever, ever. EVER!

      1. Still not clear to me, when can it be reduced?



  3. The Feds are recouping money in the court system:

    Regulators at the Federal Housing Finance Agency are on the verge of scoring some of the government’s biggest victories against Wall Street banks since the financial crisis.

    The agency is poised to recover billions of dollars from banks accused of misrepresenting risky mortgage securities sold to Fannie Mae and Freddie Mac. Among those in the crosshairs is JPMorgan Chase (JPM, Fortune 500), from which the FHFA is seeking at least $6 billion, according to several reports this week.

    A settlement of that size would dwarf any payout the government has extracted from the bank so far in connection with the financial crisis.…..ahoo_quote

    Banks sell crappy paper that doesn’t meet Fed standards and get caught doing it.

    $106 billion worth.

    1. Much easier this way than letting the securities sink to their market worth and watching holders, including Freddie and Fannie, take their lumps.

    2. Justice would have been letting those banks fail and you know it.

    3. Just think of the saving if Freeie/Fannie had done their due dilegence up front? But, ya know, its good enough for government work… and they can give work to some other government lawyers to clean it up later.

      1. Better yet: think of the saving if Fannie and Freddie never existed.

    4. Also, the flip-side to your assertion: Feds buy crappy paper that doesn’t meet their own standards, for several years, and only several years after the scheme tanks do they extract some portion of the losses they inflicted on investors to whom they resold/taxpayers who capitalized their operations. Remind me why I’m cheering?

    5. Worth noting that these banks are being hit for the paper that the banks they bought sold to Fannie and Freddie.

      ie, WAMU sold the crap debt to them. JPM then bought WAMU (with some encouragement from FDIC/Treasury), and is on the hook for what WAMU did.

      I wonder if FDIC/Treasury will have a harder time getting someone to take over a failing bank next time.

  4. Judge Jury. That’s just awesome.

    1. If she marries a guy named Executioner she will be a one stop legal system.

      1. She could settle for a man of the illustrious Ketch namesake.

  5. The rest of their lives
    In san ber’dino
    Gonna spend the rest of their lives
    In san ber’dino

  6. 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.


  7. The hobby farm thread doesn’t seem to be accepting comments now, so I’ll note here that it was excellent video work. I liked especially how Jack & Jill Ass wag their tail & roll over just like dogs or cats.

  8. Nice Post.Just what we can see, we can evaluate.

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