Documents: Preliminary CalPERS objection | San Bernardino Public Employee Association's objection (.pdf files)


The city of San Bernardino is not eligible for bankruptcy protection, argue court papers filed Wednesday by CalPERS and other creditors.

The state pension system and the San Bernardino Public Employee Association, which represents middle managers, each objected to the city getting Chapter 9 protection on several fronts in papers filed Wednesday in U.S. Banruptcy Court in Riverside.

The objection by CalPERS - the city's largest creditor - argues primarily that the city still has not provided enough information to prove that it is insolvent and can come up with a plan to adjust its debts, both required for cities to receive bankruptcy protection.

"At this point in the case, it is impossible to determine whether the city meets the eligibility requirements of Chapter 9 because, despite its previous promises, the city has failed to provide interested parties with reliable financial information and a purported plan upon which to evaluate the city's desire to effect a plan of adjustment," wrote CalPERS' attorneys, Michael J. Gearin and Michael B. Lubic.

The city's audited financial statements are not complete, and City Council members have been struggling to agree on how to cut costs and raise revenue as part of a budget plan. Only some of the $45.8million deficit has been cut, which officials have said is the first step toward a plan of adjustment.

The U.S. Bankruptcy Court should therefore require the city to provide that information by a specific date, then give CalPERS time to analyze and potentially object, the attorneys said.

Judge Meredith Jury had set a deadline of 5 p.m. Wednesday to object, which CalPERS missed by about an hour. Filing slightly late wasn't a problem, City Attorney James F. Penman said.

Penman said he hadn't yet reviewed any of the objections, but he was glad that San Bernardino - unlike Vallejo, which spent months and millions of dollars to convince a court it was eligible for bankruptcy - had convinced its three largest employee unions and bondholders not to object to the bankruptcy.

"Money the city has to spend on bankruptcy attorneys is money that has to be made up in other cuts, layoffs of additional employees and higher demands for concessions placed on the bargaining units," Penman said.

The mid-managers' unit objected more forcefully than CalPERS, saying the city must have known its financial situation and should have acted earlier.

"In light of (a consultant hired by the union's) analysis, the city's contention that it was unaware that it was standing on a `fiscal cliff' until late July 2012 is simply false," the union's lawyers write. "The city knew it was a sinking ship for years prior to July of 2012."

They point to statements by former City Manger Charles McNeely and others in 2010 and at other times that the city was headed for bankruptcy unless it took drastic steps. In particular, a study by Management Partners recommended many changes, and the city adopted only 34percent of those changes, the attorneys write.

The city knew there were problems, but two years ago was the last chance the city had to right the ship, Penman said, saying information uncovered by administrators hired this past spring revealed for the first time how deep the problem was.

"Had the council known then what they learned after May 1 when Mr. McNeely left and the information that was brought forward by Interim City Manager Andrea Travis-Miller and Finance Director Jason Simpson, something could have been done," Penman said. "The city right now is trying to survive until December when the tax money comes in and is trying not to dissolve as a city."

The two objections both show great merit, said Karol Denniston, who helped craft A.B. 506, the law governing California bankruptcies.

"What the court decides about San Bernardino's bankruptcy will show whether a city can declare a fiscal emergency when it was self-inflicted and they should have known about it for a long time, or whether that means they didn't file in good faith," Denniston said. "I'm very eager to see what happens next."


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