RIVERSIDE (AP) — California's giant pension fund is among creditors opposing San Bernardino's bid on Friday to convince a judge that the debt-ridden city is eligible for Chapter 9 bankruptcy protection.
The city 60 miles east of Los Angeles filed for bankruptcy in August after learning it faced a $46 million budget shortfall. The city will press its case before U.S. bankruptcy Judge Meredith Jury during a hearing Friday in Riverside.
Cash-strapped San Bernardino halted payments to its biggest creditor, the California Public Employees' Retirement System, last summer. The city said it could only provide essential services and there wasn't enough money to send CalPERS the required employee pension contributions.
The city anticipates deferring the payments until the end of fiscal year 2013. CalPERS calculates San Bernardino will then owe the pension plan up to $19 million.
CalPERS said in October that the city hasn't provided enough information to prove that it is insolvent and that the city can come up with a plan to adjust its debts.
San Bernardino's financial figures were described as unreliable by CalPERS lawyer Michael E. Lubic.
The city responded with documents saying there was enough relevant information. The city criticized CalPERS for "a harangue replete with misstatements respecting the city's production of documents."
Besides halting CalPERS payments, the city approved a bankruptcy court-mandated austerity plan last month that slashes more than $26 million in spending and freezes debt payments.
The City Council also voted to freeze vacancies in the Police Department and cut the Fire Department overtime budget by 35 percent.
In court documents filed last week, CalPERS called the bankruptcy a "sham," claiming the city filed for protection simply to buy time. The city's new budget plan doesn't qualify because it depends on deferring payments owed to CalPERS and other creditors, the documents state.
Giving the money as an "involuntary loan" could threaten the soundness of the pension fund, violating its constitutional duty to protect retirees statewide, its chief executive officer Ann Stausboll told the San Bernardino County Sun (http://bit.ly/VfBDZ1).
"The system has to be sound so we can pay the benefits," Stausboll said. "These people have worked their entire lives, choosing a career in public service. They made life decisions based on that."
Still, City Attorney James Penman told City Council on Monday that San Bernardino has "a very strong case" for Chapter 9 bankruptcy eligibility.