LOS ANGELES — San Bernardino, the Southern California city that began bankruptcy proceedings in July appears to be itching for a fight with its employees’ pension fund.

The city has misssed $5.3 million in payments to the California Public Employees’ Retirement System since July 31, according to city budget documents.

The city may be trying to encourage the massive pension system to negotiate over the city’s liablities, said Karol Denniston, partner in the San Francisco office of law firm Schiff Hardin.

“San Bernardino has serious cash-flow issues,” she said. “But failing to make the payments is also an elegant way to get Cal-
PERS to the table.”

City officals would not comment, but in budget documents, they claim they could not make payroll if they paid San Bernardino’s other bills.

“The deferral of expenses has been necessary to continue to meet payroll obligations and other critical obligations necessary to provide basic level services,” Andrea Travis-Miller, San Bernardino’s interim city manager, wrote in a budget document.

The city would have run out of cash to meet its Sept. 15 payroll if it had not skipped payments on $23.5 million in obligations that included payments to bondholders, CalPERS, litigation liability and employee cash-outs, budget documents say. The city has about $90 million of outstanding pension obligation bond debts and owes another $200 million for securities issued by the city’s now-dissolved redevelopment agency.

San Bernardino missed a $3.3 million pension obligation bond payment on July 31. The city also failed to make a $1 million interest payment due Oct. 1 on 2005 taxable pension bonds, according to a document filed last week on the Municipal Securities Rulemaking Board’s EMMA disclosure website.

San Bernardino’s tactics contrast with California’s other large bankrupt city, Stockton, which has continued making payments to CalPERS while proposing a sizable haircut to bondholders, including pension obligation bondholders.

In the Stockton case, bond insurers National Public Finance Guarantee and Assured Guaranty have objected to taking losses while CalPERS remains untouched.

Amy Norris, a CalPERS spokeswoman, said in an interview that CalPERS is in talks with San Bernardino about its missed payments.

But Norris said the debt is non-negotiable. If the city doesn’t make up its payments, CalPERS could terminate the city’s inclusion in the retirement system. In that case, existing assets in the plan would pay current retirees, but their benefits might be reduced. Cities are required to pay CalPERS by state law.

In the case of Stockton, “although the bondholders and bond insurers have argued that they are ‘similarly situated’ with CalPERS and its members, this is not true,” Norris said in an emailed statement. “These creditors lack the constitutional and statutory rights afforded to CalPERS and the pension system it administers.”

Simply put, CalPERS is an arm of the state of California and different laws apply to the relationship between CalPERS and a municipality, she said.

Creditors have until Thursday to file objections to the San Bernardino bankruptcy. U.S. Bankruptcy Judge Meredith M. Jury has scheduled a status hearing Nov. 5 in Riverside.

“I think bankruptcy would become a more attractive tool if CalPERS is named as an uninsured creditor, because the pressure on a lot of municipalities has been their payments to CalPERS,” Denniston said.

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