Reuters: Bankruptcy News: UPDATE 1-U.S. judge rules against Calpers on San Bernardino

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UPDATE 1-U.S. judge rules against Calpers on San Bernardino Dec 21st 2012, 21:03 Fri Dec 21, 2012 4:03pm EST RIVERSIDE, Calif. Dec 21 (Reuters) - A U.S. bankruptcy judge ruled on Friday against an attempt by the California Public Employees Retirement System to bypass the bankruptcy court and seek to collect overdue pension payments from the bankrupt city of San Bernardino in state court. The motion by the largest U.S. pension fund was denied without prejudice, Judge Meredith Jury said. The ruling denies Calpers' request that the court lift the automatic bar on collection actions that comes with a bankruptcy filing. San Bernardino, a city of 210,000 east of Los Angeles, has not made its $1.2 million biweekly payments to Calpers since it filed for bankruptcy in August. It now owes at least $8 million to the pension system in addition to a long term debt that the city pegs at $143 million. "Unless I have been misled the city has limited funds on a daily and monthly basis, it is using the limited funds to pay salaries," Jury said in her opening remarks. Lifting the protection would leave the city without the cash flow to run daily operations, she said. Calpers has also made a broader argument that San Bernardino should not be eligible for bankruptcy and that state law should prevail when it comes to pension payments. Under California state law the contract between Calpers and debtor cities is viewed as inviolate and has been treated as such by state courts. "The impact of the violation of state law is the impact on the actuarial balance of funds of Calpers - but the immediacy of that impact is less that on the countervailing harm on the other side [the city] if I lift that stay," Jury said. Calpers officials have said that they are willing to argue a wider Constitutional point - the state law defending their right to be paid versus the federal municipal bankruptcy law - all the way to the U.S. Supreme Court. Bondholders sided with the city against Calpers. Ralph Taylor, an attorney representing the holders of $50 million pension bond holders said they agreed with the judges' comments and "it was in the best interests of the city for the stay to remain in place". If Calpers were allowed to sue the city and collect its payments, it would likely be "devastating on the city, its workforce...and other creditors because Calpers will take it all" he said. San Bernardino has issued $50 million of pension obligation bonds to pay down part of its debt with Calpers. Link this Share this Digg this Email Reprints

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