This is just the latest in a string of California municipal fiscal difficulties. Perhaps more troubling, San Bernardino may offer a glimpse of the future for other cities struggling to avoid bankruptcy as varied interests and creditors make demands for limited funds. A lawyer for the state employees retirement system, known as CalPERS, says federal bankruptcy law doesn't pre-empt state control over benefits overseen by the fund, the Journal reported.
But with pension investment returns down and pension costs rising, other troubled cities might follow San Bernardino's lead if the cities think bankruptcy judges will relieve them of pension commitments, Karol Denniston, a bankruptcy lawyer at Schiff Hardin LLP in San Francisco, told Bloomberg news agency. If bond insurers win their argument that pension debts should not be given priority over other creditors, it is an open question whether pensioners could see retirement checks trimmed, or current employee contracts abrogated.
Cities contribute monthly to CalPERS, which manages $229.8 billion in investments for 1,500 cities, counties and other government agencies. It is not common for cities to be delinquent on CalPERS payments. Stockton and the city of Mammoth Lakes, both of which also filed for bankruptcy this year, continue to make their payments.
CalPERS spokeswoman Amy Norris told the Los Angeles Times that delinquent payments would have no immediate effect on pension payments to retirees, but eventually could. "Ultimately if payments are not made, they could be terminated and any available assets placed in our terminated pool," the Times quoted her. "This means no additional contributions would come in, and benefits would be paid from what remained and how that pool is invested. That could possibly impact pensions."