San Bernardino Judge Plans to Reject Calpers Bid to Sue

The California Public Employees’ Retirement System shouldn’t be allowed to sue San Bernardino, California, to collect more than $5 million owed by the insolvent city, a judge said.

U.S. Bankruptcy Judge Meredith M. Jury made a tentative ruling at a court hearing today in Riverside, California. If Calpers is allowed to sue and wins a monetary judgment, “the impact on the city’s ability to reorganize would be astronomical,” she said.

The judge’s initial ruling sides with San Bernardino and its bondholders, which claimed the city can’t afford to fund vital public services and also pay past-due obligations to Calpers, the biggest U.S. public pension fund. Jury invited Calpers and its lawyers to try to change her mind.

“This city has limited funds and at the present time is using those limited funds to pay salaries to city employees who are providing services today,” Jury said. Forcing payments to Calpers “would be the death knell” for the city, she said.

The ruling may set a legal precedent at a time when pensions for public employees are straining local governments from California to Rhode Island, according to bankruptcy attorneys that specialize in municipal insolvencies.

The case is In re San Bernardino, 12-28006, U.S. Bankruptcy Court, Central District of California (Riverside).

To contact the reporter on this story: Steven Church in Wilmington, Delaware at schurch3@bloomberg.net

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net