(August 30) RIVERSIDE—Over the objections of the city of San Bernardino’s largest creditor, Federal Bankruptcy Judge Meredith Jury granted the municipality Chapter 9 bankruptcy protection on August 28, more than a year after the city made its filing.
Jury’s decision will allow the city to undertake a restructuring plan to reorganize its fiscal house and regain solvency.
The California Public Employees’ Retirement System (CalPERS), to which the city is $14 million in arrears on payments, had objected to the city’s bankruptcy filing, maintaining the city was not working assiduously enough to put its finances in order.
Jury rejected CalPERS’ position that its claims took precedence over all city obligations, remarking that were CalPERS to commandeer all of the money San Bernardino owes it, current employees would not be paid and the city would essentially cease as an ongoing concern and would lose all hope of eventual recovery.
CalPERS attorney Michael Gearin protested that city officials had purposefully engineered a “self-inflicted crisis” so they could skip out on the city’s obligations. He said the bankruptcy court’s acceptance of the filing set a “dangerous precedent” in which cities in the future will excuse themselves from the debt they owe based simply upon the size of the debt.
Paul Glassman, an attorney representing the city, assured Jury San Bernardino had sought bankruptcy reluctantly and only out of financial necessity.
Jury said she was bound by circumstance to allow the city to move into bankruptcy and restructure its debt. She set September 4 as a hearing date for the production of documents showing proposed payments and terms of payments to the city’s creditors.