RIVERSIDE, Calif. — San Bernardino, Calif. is eligible for Chapter 9 bankruptcy protection, the bankruptcy judge hearing its case said Wednesday.
U.S. Bankruptcy Judge Meredith Jury declared the city eligible during a summary judgment hearing in the U.S. Bankruptcy Court in the Central District of California.
The next step will be for the city to begin negotiating with its creditors and develop a plan that, if approved by Jury, would lead the city out of bankruptcy.
San Bernardino, a city located 65 miles from Los Angeles with a population of about 210,000, filed for Chapter 9 in July 2012, saying it faced a $46 million deficit for fiscal 2013.
The city reached an agreement with the San Bernardino Public Employees Association earlier this month, leaving the California Public Employees' Retirement System as the primary opponent to San Bernardino being declared eligible for bankruptcy.
The city has missed payments to CalPERS since its bankruptcy filing.
The pension fund argued that "genuine issues of material fact exist as to whether the city is eligible to relief," according to court papers, and said Jury should deny summary judgment and schedule dates for a trial on the issue.
On Wednesday Jury did not schedule trial dates, and instead went through several issues that CalPERS raised, explaining why she did not find them relevant.
"I've disregarded these arguments," she said in the Riverside courtroom. "These are not contested matters before the court."
CalPERS attorneys argued that the city ignored years of warning signs of a looming financial crisis and that it intentionally put itself in a situation of fiscal crisis where it needed to file bankruptcy.
"The city hasn't even come forward with a plan," Michael Gearin, a partner at K&L Gates LLP representing CalPERS. "It hasn't even selected someone to start thinking about it."
He said CalPERS is not trying to obstruct the city's reorganization process, just its eligibility for bankruptcy protection, and that a bar needs to be set for who can enter bankruptcy protection.
CalPERS also argued, as it had in previous court documents, that San Bernardino has not disclosed enough financial documents for the court to rule in the bankruptcy case.
After hours of argument and discussion from attorneys, Jury finalized her preliminary statement that San Bernardino is eligible for bankruptcy.
She said she also intends to provide a written opinion in the next few months, outlining the reasons for her decision, but it will not hold up her oral statement.
Jury announced earlier this month that she is appointing Gregg Zive, a veteran bankruptcy judge, to serve as mediator for the bankruptcy process.
CalPERS issued a written statement after the ruling, saying it is disappointed, but will continue to participate in the process in good faith.
However, it said it would continue to aggressively pursue all past due contributions, resulting interest, and penalties owed by the city.
"These payments are statutorily required and necessary to deliver on the pension benefits promised to San Bernardino employees as a form of deferred compensation," CalPERS said. "They have worked for and earned these benefits, and CalPERS will uphold its fiduciary duty to deliver a secure retirement to our San Bernardino members."
San Bernardino stopped making payments to CalPERS last year after declaring bankruptcy, but recently resumed making payments.
CalPERS added that it is considering its options for appeals.