Bankrupt California city to resume paying pension fund, but not bondholders
4/12/2013
By Tim Reid
LOS ANGELES, (Reuters) - Bankrupt San Bernardino will resume paying into the
state pension fund on July 1, but the California city will continue to renege on
other debts including payments to bondholders, according to a new budget
released late Thursday.
Nearly a year after it halted contributions to America's biggest pension
fund, San Bernardino will resume payments to Calpers at the start of the new
fiscal year - but continue to not pay other creditors, according to the
budget.
San Bernardino will not make interest and principal payments on $50 million
in pension bonds issued in 2005, according to the new budget. The city council
on Monday will review the budget, a blueprint for how the city proposes to
manage its finances since declaring bankruptcy last August.
San Bernardino's decision to resume its $1.2 million, bimonthly employer
contributions to Calpers while continuing to defer pension bond debt will
intensify the battle between the pension fund and Wall Street bondholders.
The case has been bogged down in disputes about the scope of documents the
city must provide to its creditors. Unlike Stockton, where a judge approved the
city for bankruptcy last week, a decision on San Bernardino's eligibility for
Chapter 9 protection still appears some way off.
Both San Bernardino and Stockton are considered test cases in the titanic
battle over whether municipal bondholders or current and retired employees will
absorb most of the pain when a state or local government goes broke.
Calpers, which manages $256 billion in assets, is San Bernardino's biggest
creditor, with the holders of its $50 million in pension bonds its
second-biggest creditor.
Calpers is opposing San Bernardino's quest for bankruptcy, the only city to
have ever halted payments to the fund. Stockton kept current on its payments to
Calpers and the pension fund did not oppose that city's bid for Chapter 9
protection.
There is no mention in the budget of how the city intends to repay its
arrears to Calpers, and other creditors.
In a letter attached to the new financial documents, officials say roughly
$35 million has been "deferred" by the city - that is, not paid to
creditors.
After the city said in court on Tuesday that it hoped to restart payments to
Calpers, the pension fund told Reuters that such a move would be a "smart
business decision."
The budget message was sober in the sacrifices it says the city will continue
to have to make in order to bring its fiscal house in order.
While the new budget predicts slightly more revenues than expenditures for
the city's general fund by the end of this fiscal year - by about $2.3 million -
it states that at the end of June this year, despite salary reductions, staff
cutbacks and other drastic cost-cutting measures, the general fund will still be
nearly $7 million in the red.
"The City's overall cash balance and liquidity is the City's biggest
challenge," the budget document states. It calls the city's cash-on-hand
position "extremely serious."