Only a few days ago I posted here about the success of the City of Stockton in fending off the objections by its bondholders to its eligibility even to be in Chapter 9. Simultaneously, the City of San Bernadino is also in Chapter 9 but, unlike Stockton, has not been paying the 800 lb. gorilla in the room, the California Pension Board, CalPERS. Not, that is, until now.
You can read the Reuters news report here in which San Bernadino announces that it will pay CalPERS (but no one else) beginning July 1. Why pay CalPERS and not, say, the bondholders who lent the city millions of dollars? Ostensibly, the answer is that California state law requires payments to the pension plan and cities in bankruptcy must obey the law. "Ostensibly" because the real answer has as much to do with politics as law.
For the eye-opening back-story on how CalPERS has come to dominate municipal and even state government in California read this lengthy article by Steven Melanga, "The Pension Fund That Ate California." Melanga is hardly a dispassionate observer but the rich detail of the history of CalPERS makes for interesting reading and reinforces the political dynamics at work in these municipal bankruptcies. Just as in the General Motors bankruptcy (check here), there are powerful stakeholders who have tools not available to ordinary creditors.
I hasten to point out that the political dynamics of the California municipals bankruptcies does not undercut the legal argument put forth by the cities and CalPERS, that the cities must pay the pension management fund come hell or high water. Whether that legal argument is correct is the subject of some preliminary research that I hope to turn into a publishable article by the end of the summer.
You can read the Reuters news report here in which San Bernadino announces that it will pay CalPERS (but no one else) beginning July 1. Why pay CalPERS and not, say, the bondholders who lent the city millions of dollars? Ostensibly, the answer is that California state law requires payments to the pension plan and cities in bankruptcy must obey the law. "Ostensibly" because the real answer has as much to do with politics as law.
For the eye-opening back-story on how CalPERS has come to dominate municipal and even state government in California read this lengthy article by Steven Melanga, "The Pension Fund That Ate California." Melanga is hardly a dispassionate observer but the rich detail of the history of CalPERS makes for interesting reading and reinforces the political dynamics at work in these municipal bankruptcies. Just as in the General Motors bankruptcy (check here), there are powerful stakeholders who have tools not available to ordinary creditors.
I hasten to point out that the political dynamics of the California municipals bankruptcies does not undercut the legal argument put forth by the cities and CalPERS, that the cities must pay the pension management fund come hell or high water. Whether that legal argument is correct is the subject of some preliminary research that I hope to turn into a publishable article by the end of the summer.
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