Public pensions: San Bernardino 1, Calpers 0.
San Bernardino just received the judicial go-ahead to declare bankruptcy more than a year after its initial bankruptcy filing. The ruling, delivered by a federal bankruptcy court on Wednesday, concludes a long legal battle between the city and Calpers, which was fighting to keep the city out of bankruptcy in order to keep its funds flowing into the pension coffers. It now looks like Calpers will have to get in line with the city’s other creditors, meaning it will probably have to take a haircut just like everyone else. . . .
The judge’s reasoning behind the ruling was simple, as the New York Times reports:
All of the 10,000 creditors are better served by allowing the bankruptcy to go forward, Judge Jury added.
“I can’t see anything other than dissolving the city if they can’t reorganize under Chapter 9,” the judge said. “They can’t make cash where it isn’t. If they got all the money they want—who isn’t going to get paid? All the employees? I don’t know, how does that help Calpers if the employees aren’t paid?”
The bankruptcy of one of California’s biggest cities is a major story in its own right, but even more important is what this tells us about Detroit, the country’s largest municipal bankruptcy case. Followers of that saga will note that Detroit’s pension funds are using tactics very similar to those of Calpers, fighting in court to keep the city out of bankruptcy. The Times is careful to note that the two cases are different, and that San Bernardino’s case is not precedent-setting for Detroit. But this is nonetheless an early indicator for how federal bankruptcy courts might treat these cases moving forward—and it gives Detroit’s public pension funds plenty more to worry about.
There are some truths in life that are inviolate.
Promises that can’t be kept, won’t be.
Debt that can’t be repaid, won’t be.
Government and people need to figure this out…