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The Equity Factor

San Bernardino Ruled Eligible for Bankruptcy

The handling of San Bernardino’s pensions could be a harbinger of how other municipalities will be handled in bankruptcy.

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San Bernardino is eligible for bankruptcy protection, a federal judge ruled yesterday.

The California city of 213,000, which sits about 60 miles east of Los Angeles, filed for Chapter 9 last August, saying it had run out of cash and had racked up a $46 million deficit. Judge Meredith Jury said that the city has been insolvent for months and all of its 10,000 creditors are better served by proceeding with the bankruptcy, according to the New York Times.

The California Public Employees’ Retirement System — “Calpers” for short — disagrees. San Bernardino stopped making biweekly payments to Calpers, its biggest creditor and the largest pension fund in the country, last year. (Stockton, another California city that declared bankruptcy last year, continued making its payments to the $260 billion fund.)

You can bet that Detroit emergency manager Kevyn Orr and the rest of the Motor City, including all the pensioners, will be paying close attention to San Bernardino. On Monday, judge Steven Rhodes said he will hear the initial oral arguments in Detroit’s bankruptcy case on September 18, nearly a month before the scheduled October 23 date. It’s clear that Rhodes wants to determine Detroit’s eligibility quickly.

San Bernardino, of course, is not Detroit. And while Detroit’s high-profile case might be more alluring to reporters — from the ruin porn to the years of incompetence in City Hall — you could argue that pensions have, on some level, put the cities where they are today. Matt Bevilacqua wrote here last month about five cities with worse pension troubles than Detroit.

Whatever happens in San Bernardino isn’t a blueprint for Detroit. But it could be a harbinger of how public pensions are handled in municipal bankruptcies in the future.

The Equity Factor is made possible with the support of the Surdna Foundation.

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Bill Bradley is a writer and reporter living in Brooklyn. His work has appeared in Deadspin, GQ, and Vanity Fair, among others.

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Tags: detroitequity factorpensionsbankruptcysan bernardino

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