Challenge to San Bernardino’s bankruptcy to be argued in court

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San Bernardino officials will be in federal Bankruptcy Court on Friday morning to rebut efforts by CalPERS, the state retirement system, and other creditors to challenge the city’s filing for bankruptcy protection.

San Bernardino stopped making payments to CalPERS, the city’s largest creditor, after filing for Chapter 9 bankruptcy protection Aug. 1, a move that city officials estimate will save more than $12 million.

CalPERs is asking U.S. Bankruptcy Court Judge Meredith A. Jury in Riverside to rule that the
financially troubled city is ineligible to file for protection and therefore must continue making payments on behalf of the city’s 1,100 retirees and current employees.

The San Bernardino Public Employees Assn. also is challenging the city’s bankruptcy filing, arguing that the city is attempting to circumvent a state law that requires cities to enter into mediation with creditors and labor unions before filing for bankruptcy. In July, the City Council declared a “fiscal emergency,” which city officials said triggered an exit clause in the law and exempts San Bernardino from that requirement.

Facing a $45.8-million budget shortfall, the City Council in November voted to slash more than $26 million in spending and freeze debt payments to keep the municipality afloat and continue to provide essential government services.

The austerity plan, a required step in the bankruptcy process, freezes vacancies in the Police Department even as the city deals with an increase in violent crime. The Fire Department’s overtime budget was slashed by 35%.

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-- Phil Willon in Riverside