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San Bernardino to Curb Payments on Retirees in Bankuptcy

San Bernardino, the second-largest U.S. city to seek bankruptcy protection, will put off paying $13 million to California’s retirement system and $3.4 million for pension bonds issued in 2005, in a provisional spending plan.

The City Council voted 5-2 for the fiscal road map yesterday to meet a court-imposed Nov. 30 deadline for a balanced interim municipal budget while in bankruptcy proceedings. In addition to deferring payments on pension obligations, the plan calls for firefighting and policing cuts.

“Without restructuring its finances or maintaining the protection of Chapter 9, the city could not pay its employees, retirees, bondholders or vendors,” Andrea Travis-Miller, the acting city manager, and Jason Simpson, the finance director, said in a council memo. “This would result in uncontrolled default and, presumably, a collapse of public services.”

San Bernardino became the second-largest U.S. city to seek Chapter 9 bankruptcy protection after sales and property taxes failed to recover from the longest recession since the Depression. The city already has skipped a $5.3 million payment owed to the California Public Employees’ Retirement System, known as Calpers, and a $1 million interest payment on the 2005 bonds, issued to cover pension obligations.

Total Debt

The city has $90 million of outstanding general-obligation debt, according to an Aug. 29 council report. The municipality is also responsible for an additional $200 million in securities issued for its redevelopment agency, which was closed this year under a law eliminating the function statewide.

To help curb spending, the city has fired school crossing guards, closed three branch libraries and cut 41 non-uniformed police jobs, according to budget memos. The municipality of 213,000 about 60 miles (100 kilometers) east of Los Angeles, confronts a projected 20 percent increase in retiree costs and has a $320 million pension deficit, the documents show.

The combined measures should eliminate a $45 million budget gap this year, and begin to deal with an $18 million general-fund cash deficit, according to the memo from Travis-Miller and Simpson. San Bernardino already owes about $15 million to workers’ compensation and redevelopment funds, among others, that were tapped to supplement revenue for general spending.

With about 296,400 residents, Stockton, California, became the largest U.S. city to seek bankruptcy protection in June.

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

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