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A Luxembourg bank bracing to recover a fraction of nearly $50 million in bonds it bought from the bankrupt city of San Bernardino, Calif., is appealing the dismissal of a lawsuit that could have enabled the bank to recover more money, Dow Jones Daily Bankruptcy Review reported today. With its appeal on Monday, bank officials are trying to revive a lawsuit, which was dismissed last month by Bankruptcy Judge Meredith Jury, that could have forced the city to repay the bank's bonds in full. San Bernardino leaders trying to fix the city's financial problems have proposed to repay to the bank, Erste Europaische Pfandbrief-und Kommunalkreditbank AG, about 1 percent on roughly $48 million in bonds.

A chapter 9 solution to Puerto Rico’s economic and financial woes, as the House Judiciary Committee is contemplating via H.R. 870, is ill-conceived on several grounds, according to a commentary in today’s Roll Call. First and foremost, the bill’s passage would override with retroactive effect the bond indentures of the millions of investors throughout the U.S. who have bought Puerto Rico’s bonds, mostly through mutual funds. H.R. 870 would give carte blanche to the Commonwealth to break its solemn pledge that our bonds would be paid in accordance with the laws and contracts under which they were issued, according to the commentary. Second, H.R. 870 would authorize only the island’s public utilities and agencies to restructure their debts under the supervision of a federal bankruptcy judge. Depending on how broadly it would be implemented, a chapter 9 process would thus apply merely to between one-fifth and one-third of the Commonwealth’s more than $70 billion of debts to bondholders and banks, according to the commentary. The bulk of public indebtedness would have to continue to be serviced in full and on a timely basis.

New state and local government employees in California would no longer earn guaranteed public pensions unless voters decide otherwise, under a 2016 ballot measure proposed by two former city officials, Bloomberg News reported today. Former San Jose Mayor Chuck Reed and former San Diego City Councilman Carl DeMaio, who championed efforts to reduce benefits in their cities, said yesterday that the measure would allow local voters to decide how to balance employee pensions against the cost of municipal services. Growing public employee retirement costs have hobbled California cities since the recession, contributing to municipal bankruptcies in Vallejo, San Bernardino and Stockton. Elected officials in cities and counties began boosting pensions for police and firefighters after lawmakers in 1999 raised benefits for state troopers. At the time, the California Public Employees’ Retirement System had 138 percent of the assets needed to cover projected liabilities. It now has about 77 percent.

Puerto Rico’s junk-rated power authority got a two-week extension from creditors that will give it more time to sort out its finances, Bloomberg News reported today. The accord allows the Puerto Rico Electric Power Authority (PREPA) to negotiate with bondholders, banks and debt insurers outside of court on ways to revamp its operations and finances. Talks have been going on since August. It’s the fourth time for creditors to consent to prolong the accord, which was set to expire yesterday. PREPA has $9 billion of obligations and has breached bond contracts by using reserves for debt payments.

State and local governments will have to add hundreds of billions of dollars in retiree obligations to their books under rules enacted yesterday that spotlight the growing costs of health insurance and other benefits owed to former municipal employees, the Wall Street Journal reported today. The new rules approved unanimously by the Governmental Accounting Standards Board (GASB), which sets accounting rules for states and municipalities, will require governments to carry their unfunded retiree-benefit obligations on their balance sheets — thus making their overall financial position look worse. Currently, governments are required only to disclose the benefit costs in the footnotes to their financial statements. In addition, governments will have to use more conservative interest-rate assumptions in calculating the value of benefit obligations that they haven’t funded. That could increase the current value of the obligations, thus worsening the plans’ funding shortfalls. The changes are intended to provide more information to taxpayers, policy makers and municipal-bond analysts, GASB Chairman David Vaudt said.

Puerto Rico’s publicly owned electric monopoly presented creditors with a restructuring plan, a month before a roughly $400 million payment comes due that analysts say the utility can’t pay, the Wall Street Journal reported today. The plan includes efforts to modernize the authority and increase efficiencies, with a goal of stabilizing power rates, according to Chief Restructuring Officer Lisa Donahue, who declined to talk about a possible debt restructuring, citing continuing confidential talks with creditors. The power authority, known as PREPA, is negotiating with creditors ahead of a June 4 deadline to extend talks or face a possible default. PREPA has been drawing on reserves to make debt payments and doesn’t have enough in those accounts to make the July payment, its trustee said in an April bond disclosure. The episode highlights the volatility of Puerto Rico’s fiscal situation as the commonwealth and its indebted public agencies face a series of deadlines in coming weeks, each of which has the potential to change investor attitudes toward the island’s debt.

Rather than pass a bill that bears directly on ongoing negotiations between Puerto Rico Electric Power Authority (PREPA) and its bondholders, Congress should use this opportunity to reconsider every aspect of the U.S. relationship with Puerto Rico, according to a Forbes.com commentary today. Maybe Puerto Rico should be a state, or maybe it should be completely independent of the U.S., according to the commentary, which went on to say, “They’ve sort of been in limbo for quite some time now, so let’s figure it out once and for all.” According to Carlos Colón de Armas, acting dean of the School of Business Administration at the University of Puerto Rico, “A Puerto Rican default should not surprise anyone. For eight years, from 2005 through 2012, government expenses exceeded revenues on average by approximately $1 billion annually.” As of 2014, virtually all of the Puerto Rico Government Development Bank’s (GDB) $9 billion in loans were to government enterprises, according to the commentary.

Chicago won some relief from its pension burden as Illinois’s legislature cut required payments into police and fire retirement systems, Bloomberg News reported yesterday. Yet lawmakers failed to agree on a budget, deepening a crisis that threatens the state and city alike. The Senate voted 38 to 20 Sunday for a bill that would reduce Chicago’s payments over the next five years in a move meant to relieve immediate pressure, though it doesn’t address the city’s risk of insolvency from $20 billion in unfunded liabilities. Meanwhile, budget talks between the Democratic-controlled legislature and Republican Governor Bruce Rauner broke down hours before the session’s scheduled end, meaning any compromise to close a $6.2 billion deficit for the year starting July 1 now will require a three-fifths vote rather than a simple majority. Rauner, a former private-equity executive, has criticized Democrats’ insistence on tax increases to deal with the deficit. He said he won’t back them unless Democrats approve spending cuts and ease business regulations.

The federal judge who oversaw Detroit’s historic bankruptcy case said yesterday that he is “deeply concerned” about unfunded pension liabilities in other Michigan municipalities and they should consider transitioning to 401(k) retirement plans for employees, the Associated Press reported yesterday. Steven Rhodes, who retired in February, told a crowd at the Detroit Regional Chamber’s Mackinac Policy Conference that the city is not the only one trying to figure out how to make good on promised pension payments to current and future retirees. He said that it is crucial that local governments make their pension plan contributions, which he said seems “obvious” but was not happening in Detroit before it filed for bankruptcy. Cities also tend to understate how much they will owe by assuming “too high” investment returns, he said.

Stockton, Calif., urged an appellate court yesterday to back the city's exit from municipal bankruptcy after a holdout creditor appealed its plan, Reuters reported. Stockton said in a court brief yesterday that the creditor, two funds managed by Franklin Templeton Investments, was trying to re-litigate its case using the same flawed legal arguments that a U.S. federal bankruptcy court judge had already rejected. Franklin filed the opening brief to its appeal with the U.S. Bankruptcy Appellate Panel of the Ninth Circuit in March, claiming that it would receive less than 1 percent of its unsecured claim and that "no bondholder has ever received so little in the history of municipal bankruptcy." Stockton argued that the city "has slashed costs, imposed new taxes, and otherwise done everything it could to propose a plan that pays creditors fairly while ensuring that the city would emerge from bankruptcy on stable financial footing."