A few days ago I observed that San Bernardino indicated that it was about to file its Chapter 9 municipal plan of adjustment. Well, the time has come and you can read Reuters news account of the plan here. I haven't read the plan so I'll limit my comments to the obvious: like Detroit, San Bernardino plans to pay its bondholder creditors (or their insurers) a pittance while continuing to pay into the state employee retirement fund whatever CalPERS says is due.
Such a state of affairs ultimately obtained in Detroit and Stockton. As I explained in Municipal Bankruptcy: When Doing Less is Doing Best (download here), a plan may not provide for "unfair discrimination" when it comes to creditor payouts. Lest you think that 100% to CalPERS and 1% to bondholders might be unfair, recall that CalPERS does not deem itself a creditor. In other words--its words--CalPERS is a conduit for payments to retirees. It is thus the retirees who are getting 100% of their pensions while bondholders get their pittance.
But isn't paying retirees 100% equally unfair when compared to 1% for bondholders? Perhaps, but that's not San Bernardino's position. The city asserts that it must pay current retirees to keep its current and prospective employees happy. Discrimination? Yes, but not unfair discrimination.
Judge Klein reluctantly bought this argument in the Stockton bankruptcy and there's little reason to believe Judge Jury won't go along in San Bernardino's.
Such a state of affairs ultimately obtained in Detroit and Stockton. As I explained in Municipal Bankruptcy: When Doing Less is Doing Best (download here), a plan may not provide for "unfair discrimination" when it comes to creditor payouts. Lest you think that 100% to CalPERS and 1% to bondholders might be unfair, recall that CalPERS does not deem itself a creditor. In other words--its words--CalPERS is a conduit for payments to retirees. It is thus the retirees who are getting 100% of their pensions while bondholders get their pittance.
But isn't paying retirees 100% equally unfair when compared to 1% for bondholders? Perhaps, but that's not San Bernardino's position. The city asserts that it must pay current retirees to keep its current and prospective employees happy. Discrimination? Yes, but not unfair discrimination.
Judge Klein reluctantly bought this argument in the Stockton bankruptcy and there's little reason to believe Judge Jury won't go along in San Bernardino's.
No comments:
Post a Comment