CalPERS, CalSTRS and other government
pensions
June 24, 2013
CalPERS wants lien on local government assets
Bankrupt San Bernardino skipped its payments to CalPERS this fiscal year, an
unpaid bill totaling more than $13 million, and exposed a weakness in the
pension systemfs legal power to collect from deadbeats.
Current law authorizes CalPERS to place a lien on the assets of government
agencies only if they terminate their contract and leave the system, a legal
step intended to get enough money to cover the debt or gunfunded liabilityh for
promised pensions.
In April, the CalPERS board approved a staff proposal to sponsor legislation
that would gprovide CalPERS with a present lien on all assets of a contracting
public agency in the amount of all obligations owed to the system.h
A spokesman for the California Public Employees Retirement System, Brad
Pacheco, said the proposed legislation is on a gsecond track,h not necessarily
prompted by the San Bernardino bankruptcy or intended for application there.
At a CalPERS finance committee meeting in April, board member J.J. Jelincic
asked if the proposed legislation should be an gurgencyh measure, which could
take effect quickly but would require a two-thirds vote of approval.
gI would think that makes it much more difficult in this environment, at
this time of year, to move it through,h said a CalPERS lobbyist, Danny Brown.
Officials said last week CalPERS plans to wait until next year to introduce the
bill.
When San Bernardino filed for bankruptcy last August, staying debt
collection, the city stopped payments to CalPERS this fiscal year but plans to
resume next month. In the Stockton and Vallejo bankruptcies, the cities did not
skip CalPERS payments.
A CalPERS request to sue San Bernardino for payment in state court was
rejected by U.S. Bankruptcy Judge Meredith Jury in December. She said employee
pay would be threatened and the ability to reorganize in bankruptcy
undercut.
This month the judge approved a CalPERS request to remove a law firm
representing a bond insurer, National Public Finance Guarantee. The law firm,
Winston & Strawn, hired lawyers from a firm representing CalPERS in
bankruptcies.
The CalPERS vs. bond insurers battle in the San Bernardino and Stockton
bankruptcies is widely watched because of the potential for a precedent-setting
decision: Can pension debt be cut in bankruptcy, and if so whose pensions would
be cut?
In the San Bernardino bankruptcy, where CalPERS opposes the cityfs
eligibility, the judge was impatient this month with CalPERS requests for more
financial information from a short staff with recent turnover in two top
positions.
gRight now, youfve got us in limbo — us being this process, not me, the
city, everyone here,h Judge Jury told a CalPERS attorney, as quoted by Reuters.
She set hearing dates of July 17 and Aug. 28.
Stockton was ruled eligible for bankruptcy in April, despite opposition from
National Public and Assured Guaranty. The bond insurers, who are in mediated
talks with the city, were criticized this month by the judge, who set a hearing
July 18.
gThe objectors are trying to get their way by forcing the city to incur
massive legal expenses that should not be necessary,h said U.S. Bankruptcy Judge
Christopher Klein. He said a more appropriate challenge to CalPERS would be in
the bankruptcy exit plan.
After the proposed legislation to strengthen CalPERS debt collection was
publicly discussed in the finance committee, the full board approved what was
only described as a proposed clarification and revision of a government
code.
gWe are in the midst of incredibly challenging economic times that are
affecting the fiscal health of our state and its municipalities and public
agencies,h said a
staff report to the committee.
gIncreasingly, public agencies are experiencing difficulty paying their
debts that are due and owing, resulting in defaults on monetary obligations and
even petitions for relief under Chapter 9 (of the bankruptcy code), as seen in
the cases of the City of San Bernardino and the City of Stockton,h said the
report.
When a Compton partial payment fell $2.7 million short, CalPERS filed a
lawsuit last September seeking full payment with interest and penalties. The
struggling city reportedly was considering bankruptcy last summer.
But the partial payment was just a gcash-flow problem,h Compton officials
said, and full payment would be made in November when money arrived from an
unusual parcel tax that fully funds pensions.
The proposed CalPERS legislation overhauls the state public employeesf
retirement law to make it clear that government employers must pay, without
limitation, a number of obligations:
Employer pension contributions, expenses for determining contributions,
costs of administering the system, required employee contributions (including
those paid by employers on behalf of employees), deficits on termination,
interest on late payments, collection costs and attorney fees.
In addition to placing a gpresent lienh on employer assets, the proposed
legislation would set a process for enforcing the lien after a payment default,
including notification of the employer and its creditors and the impoundment of
assets.
Peter Mixon, CalPERS general counsel, gave the committee the example of the
vehicle license fee collected by the state Department of Motor Vehicles and
returned to cities and counties.
gWe would send a notice over to DMV saying, eDonft pay that out because we
intend to collect that debt,fh he said.
Mixon said CalPERS would try to avoid taking revenue or fees used to pay off
grevenue bonds.h However, he said, a new state law might change the gfirst in
time and first in righth priority.
gIf you have an equal lien then it is efirst in timef that basically has the
higher priority,h Mixon said. gBut statutes can change that priority and so, at
least in theory, we would have a priority over the revenue, so long as itfs the
revenue of the city itself, even if itfs encumbered.h
Board member Bill Slaton, mentioning leases on equipment, asked if a statute
changing lien priority would gdampenh lending.
gI think it provides more clarity, for one thing,h said Mixon, gbecause
right now there is a lack of clarity about our priority in the scheme of things,
and I think that is creating uncertainty, certainly in the bond market.h
gI think that by laying out exactly where CalPERS stands, the process that
CalPERS has to go through in order to enforce that lien and actually foreclose
on it — I think that is going to give everybody a better idea where they stand,h
he said.
Reporter Ed Mendel covered the Capitol in Sacramento for nearly three
decades, most recently for the San Diego Union-Tribune. More stories are at http://calpensions.com/
Posted 24 Jun 13