CalPERS shouldn't be allowed to sue San Bernardino, Calif., to collect more than $5 million owed by the insolvent city, a judge said.
U.S. Bankruptcy Court Judge Meredith M. Jury made a tentative ruling at a court hearing Friday in Riverside, Calif. If the $240.7 billion California Public Employees' Retirement System, Sacramento, is allowed to sue and wins a monetary judgment, “the impact on the city's ability to reorganize would be astronomical,” she said.
Ms. Jury's initial ruling sides with San Bernardino and its bondholders, which claimed the city can't afford to fund vital public services and also pay past-due obligations to CalPERS. She invited CalPERS and its lawyers to try to change her mind.
“This city has limited funds and at the present time is using those limited funds to pay salaries to city employees who are providing services today,” Ms. Jury said. Forcing payments to CalPERS “would be the death knell” for the city, she said.
The ruling may set a legal precedent at a time when pensions for public employees are straining local governments from California to Rhode Island, according to bankruptcy attorneys that specialize in municipal insolvencies.
In a statement, Robert Glazier, deputy executive officer, external affairs, for CalPERS said: “While it is not surprising that the decision was to keep the issues in bankruptcy court, the court clearly stated today’s decision was not a 'great victory' for the City of San Bernardino nor a 'great defeat' for CalPERS. The court recognized that all debts incurred after filing for bankruptcy by any entity must be paid in full at the time of approval of the plan of adjustment. We are confident that the court will recognize the priority of our members and the obligations owed to them.”