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Defending its plan to fully repay its debts to CalPERS, the bankrupt city of San Bernardino has asked a judge to dismiss a lawsuit by creditors demanding equal treatment, the Sacramento Bee reported today. The city’s motion is the latest chapter in the ongoing saga over public pensions in California and how they’re treated in bankruptcy. The judge overseeing Stockton, Calif.’s case ruled last fall that municipal pension plans can be altered just like any contract in bankruptcy, but he also approved the city’s plan to keep paying CalPERS in full in order to preserve its retirement program. A similar fight is playing out in San Bernardino, which filed for chapter 9 municipal bankruptcy in 2012. After months of bickering, the city said that it planned to pay its $24 million-a-year CalPERS bill in full and had begun repaying the big pension fund millions of dollars in past-due payments. Two of San Bernardino’s creditors filed suit over that plan in January: Luxembourg bank EEPK and Ambac Assurance Corp., a New York bond insurer. They’re seeking repayment on a $59 million bond issued by the city in 2005.

More than 250 police and firefighters have quit in Memphis and new recruits are proving difficult to attract, after the city opted to end its traditional defined-benefit pension and cycle a portion of retirement benefits for many current employees next year into a 401(k)-style account, the Wall Street Journal reported today. Memphis Mayor A C Wharton, Jr. said that a widening retirement gap in his city left him with “no other option” than to trim guaranteed payments from an existing pool of employees. Obligations soared to $554 million as of Dec. 31, from a surplus of $94.1 million just six years before. The Memphis pension’s investments were pummeled during the financial crisis, with its mid-2008 assets of $2.2 billion plummeting by 18 percent in a year to $1.8 billion. Its funded ratio sunk during that time from 104.5 percent — a surplus of assets — to 79.8 percent. Nearly 675 police officers, out of a uniformed force of about 1,300, took a sick day in early July to protest the proposed cuts. After a wrenching political debate, the City Council voted in December to end a defined-benefit plan common among public employers for more than 40 percent of its 4,100 employees.

A judge inheriting what’s left of Detroit’s bankruptcy case was confronted with a new dispute on Wednesday as attorneys argued about whether some city retirees should qualify for financial aid from the state, the Associated Press reported yesterday. Bankruptcy Judge Thomas Tucker held a hearing to get a status report from parties in the largest public bankruptcy in U.S. history. Detroit emerged from Chapter 9 in December, and Bankruptcy Judge Steven Rhodes, who steered the case, retired. Detroit erased or restructured $7 billion in debt and pledged to spend $1.7 billion over a decade to improve city services. The sacrifices include a 4.5 percent pension cut for roughly 12,000 non-public safety retirees, which kicked in this month, and the elimination of their annual cost-of-living payment. Retirees whose income falls below a certain level can apply for aid from a special $20 million fund administered by the state. But the state is opposing efforts to extend that aid to retirees whose returns from an annuity program harmed the city’s pension fund. Those retirees now are being forced to repay the generous returns as part of the bankruptcy case. Detroit’s general pension fund paid at least 7.9 percent a year on annuities no matter how Wall Street performed. The amount over a 10-year period was pegged at $387 million.

Puerto Rico's debt-laden power authority, Prepa, said on Friday that it will hold off on presenting a restructuring plan as it tries to secure an extension of an agreement from creditors not to foreclose on its $9 billion in debt, Reuters reported. The current agreement, which expires on March 31, had called for a deadline today for Prepa to unveil a proposal to restructure about $9 billion in debt. But it will miss that deadline, Lisa Donahue, Prepa's chief restructuring officer, said in a statement. “We have made significant progress" to negotiate an extension of the forbearance agreement, "but there is more work to do and as a result, we have not yet finalized a plan to present to the forbearing creditors." Donahue said she told creditors Prepa "would not satisfy this milestone," and that creditors do not plan to call a default as a result of the delay.

A bill to give Puerto Rico's ailing public utilities a way to restructure debt under the U.S. Bankruptcy Code drew skepticism from congressional Republicans but support from Democrats, who said that it would relieve the island's problems, Reuters reported yesterday. The House Judiciary Subcommittee on Regulatory Reform, Commercial and Antitrust Law yesterday held a hearing on the bill, proposed by Puerto Rico's non-voting congressional delegate, Democrat Pedro Pierluisi. The legislation would allow the territory's government-owned corporations to file under chapter 9 of the bankruptcy code. Subcommittee Chairman Tom Marino of Pennsylvania and Representative Darrel Issa of California, both Republicans, said that they were undecided on whether to support the bill in its current form. "Is it wise to provide this (chapter 9), even prospectively, without a real plan presented from the Commonwealth of Puerto Rico going forward for how they're going to work their way out of an ongoing and systemic pattern?" Issa said at the hearing. But Democrats said the legislation would help Puerto Rico's utilities when they run out of options. "This legislation is a wise use of the law — a step we can take now to avoid a bailout or a financial crisis later," said Illinois Democratic Representative Luis Gutierrez, who sits on the Judiciary Committee itself but not the subcommittee. Read more.

Additionally, a Washington Post editorial today noted that there are two main objections to the bill: that it amounts to changing the rules under which investors agreed to buy Puerto Rico’s debt and that the island could scrape together the cash to pay its creditors if it were to reform the entities in question, especially the financially inefficient electric utility, which is owed hundreds of millions of dollars by the island government. Both points are valid, to an extent — just as it’s valid to point out that investors in Puerto Rican debt heretofore enjoyed an especially good deal because it paid tax-free interest. Puerto Rico must indeed reform its public sector, according to the editorial, but the structural crisis affecting its economy is such that even dramatic new efficiencies probably wouldn’t produce enough growth to pay its debts as currently structured. The editorial argues that, for the sake of its economic future, America’s best friend in the Caribbean needs the power to negotiate a new, more sustainable deal with its creditors, and Congress should grant it. Read the editorial.

Former Detroit emergency manager Kevyn Orr today defended his decision not to push the city into 401(k)-style pension plans during the city's chapter 9 bankruptcy, the Detroit Free Press reported today. Orr said that he's comfortable with his decision not to eliminate the city's defined-benefit plan, which guarantees a certain level of post-retirement benefits to pensioners. Instead, the city negotiated a new formula that requires some union members to contribute to their pensions.

In related news, Detroit Mayor Mike Duggan presented a fiscal 2016 budget on Tuesday to the city council, warning that any changes in the spending plan would need approval from the post-bankruptcy city's oversight board, Reuters reported yesterday. Detroit exited its 17-month bankruptcy in December. A financial review commission, created under Michigan law, maintains control over Detroit's spending until the city pays its bills and balances its budget for three straight years. "Everything that we do is focused on how fast we can return self-determination to the city of Detroit," Duggan told the council, saying the earliest that could happen is 2018. 

Stockton, Calif., says that it has begun paying creditors as a final step to exit bankruptcy after more than two-and-a-half years dealing with over $2 billion of debt, Reuters reported today. Stockton, a city of 300,000 east of San Francisco, wrote checks to 1,100 retirees for their health benefits claims and to other general unsecured creditors earlier this week. Once the wire transfers were completed yesterday, the city will be "out of bankruptcy," meaning it had restructured its obligations, attorney Marc Levinson said. Stockton's plan to exit bankruptcy was approved in October with a reduction of debts imposed on creditors, including Franklin Templeton Investments, which took a haircut from its collateral of golf courses and a park. 

The city of Stockton, Calif., will leave bankruptcy protection today, bringing to a close years of cost-cutting efforts that affected bondholders, taxpayers and its retired employees, Dow Jones Daily Bankruptcy Review reported today. Stockton City manager Kurt Wilson said that the milestone will enable the city, which was hit hard by the housing crash, to move "forward toward recovery." The city, located about 80 miles inland from San Francisco, is getting out of bankruptcy after more than two years. During the case, voters approved a new 3/4-cent sales tax increase to pay for more police officers, while more than 1,000 workers and retirees who had $538 million in claims against the city also agreed to accept one-time payments worth $5.1 million instead. Bankruptcy Judge Christopher Klein approved the city's reorganization plan in October.

Retired Bankruptcy Judge Steven Rhodes is bullish on Detroit's future — praising its "very enthusiastic and confident and competent mayor" and "supportive City Council" — three months after approving the city's plan to exit chapter 9 bankruptcy, the Detroit Free Press reported on Saturday. But there are also a few aspects of the case and city that trigger regret, worry and caution for Judge Rhodes. Detroit missed a chance to do away with defined-benefit pensions, he said, exposing the city to long-term risk from cash shortfalls or poor investment returns. And despite being subject to long-term fiscal oversight by a Financial Review Commission, Judge Rhodes acknowledged, Detroit's comeback could be delayed or derailed by a relapse of city-suburb discord on issues like the region's water and sewer system, or a return to mismanagement or corruption at City Hall in Detroit. "I'm very optimistic about the future of the City of Detroit. Its balance sheet is fixed," Rhodes said. "It has very feasible and reasonable budgets. ... So the formula and the ingredients are there."