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Bankrupt San Bernardino, Calif., might have to contract out essential services and place a revenue bond on the ballot in 2015 elections after a measure failed this week that would have lowered base pay for police and firefighters, Reuters reported yesterday. Paul Glassman, San Bernardino's bankruptcy attorney, told the federal judge overseeing the city's bankruptcy that a rejection by voters on Tuesday of a pay-cutting ballot measure for police and firefighters was a "gamechanger" that had thrown the restructuring plan off track. Lawyers for San Bernardino's police and fire unions reacted with dismay and anger to what appeared to be an effort by the city to blame the failure of Tuesday's ballot measure on the city's inability to come close to producing a bankruptcy exit plan, 28 months after it entered chapter 9 protection. San Bernardino, a city of 210,000, 65 miles east of Los Angeles, declared bankruptcy in July 2012 with a $45 million budget deficit. Glassman told Bankruptcy Judge Meredith Jury, after demands by police and firefighter unions for a deadline to produce a bankruptcy plan, that the city would now be unlikely to produce an exit blueprint before the summer of 2015.

A federal judge was expected to rule today on Detroit’s plan to emerge from the nation’s largest-ever municipal bankruptcy filing, the New York Times reported today. Bankruptcy Judge Steven Rhodes is to present his decision from the bench on Friday afternoon, and he was widely expected to accept Detroit’s exit plan. Acceptance of the proposal would end more than 15 months under court protection for this struggling city. It would allow Detroit, which had accumulated about $18 billion of debt before filing for reorganization in July 2013, to shed $7 billion in debt and to invest in long-neglected city services. The exit plan sets aside $1.7 billion over a decade to remove blighted buildings, to buy fire trucks and ambulances, and to upgrade the city’s antiquated computer systems. Detroit has spent about $150 million on lawyers, experts and other bankruptcy costs, city officials say.

Chief Judge Gerald Rosen of U.S. District Court for Eastern Michigan oversaw the biggest settlements in Detroit’s bankruptcy case: an $816 million deal to bolster public-worker pensions in return for protecting city-owned art from liquidation; Detroit’s agreement to pay $85 million to end interest rate swaps valued at $288 million; the Syncora accord; and a similar deal that will pay another bond insurer a fraction of the $1.1 billion it claimed to be owed, Bloomberg News reported today. Rosen’s impact on the case has been almost as great as that of Steven Rhodes, the U.S. bankruptcy judge who’s set to announce tomorrow whether he’ll approve Detroit’s plan, said Erik Gordon, a professor at the University of Michigan’s Ross School of Business. Under the city’s plan, Detroit will eliminate more than $7 billion of about $10 billion in unsecured liabilities, including an underfunded pension, $1.4 billion in pension-related debt owed to hedge funds and bond insurers, and future health-care costs for retired city workers. The deal to shore up Detroit’s pension system is the most significant in the case. It resolved a $3.5 billion hole in two pension funds that cover about 30,000 retired and active city employees, including police and firefighters. Rosen helped persuade some of the biggest philanthropic foundations in the U.S. to contribute more than $300 million to the pension systems in exchange for a guarantee that the city-owned Detroit Institute of Arts, which houses a collection worth billions of dollars, wouldn’t be used to help pay creditors.

Stockton, Calif., won court approval of its plan to exit bankruptcy by paying bond investors pennies on the dollar while shielding public pensions, in a case closely watched by other cities facing heavy retiree costs, Bloomberg News reported yesterday. “This plan, I’m persuaded, is the best that could be done in terms of restructuring the city’s debts,” Bankruptcy Judge Christopher Klein said at a hearing yesterday. Bankruptcy lawyers and pension advocates nationwide have been following the case to see whether pensions administered by the California Public Employees’ Retirement System would be protected from cuts. Judge Klein ruled earlier that CalPERS doesn’t deserve special protection, the first time the biggest U.S. public pension fund was found vulnerable to cuts in a bankruptcy. CalPERS and public-worker groups decried the decision. A bankruptcy judge in Detroit also ruled against pension funds in a similar situation.

For the previous three fiscal years and into the current one, with public services languishing and ready cash scarce, Stockton, Calif., officials have spent nearly $16.3 million and budgeted another $25 million for costs associated with Stockton’s chapter 9 bankruptcy, the Stockton Record reported yesterday. Those numbers — totaling $41,268,363 — stand as the current total projected expenditures for Stockton’s descent into insolvency. Based on the city’s latest projections, more than $11 million of that sum could be used to pay down about $48 million in settlements and obligations that will remain even after Stockton emerges from bankruptcy. But first, the city awaits Bankruptcy Judge Christopher Klein’s ruling on whether to approve Stockton’s chapter 9 exit plan, 28 months after the City Council took the historic step of acknowledging financial ruin. Judge Klein is scheduled to announce whether he has decided to confirm Stockton’s proposed bankruptcy Plan of Adjustment at 10 a.m. PT today.

Detroit has been a client of Gabriel Roeder since 1938, when the city first started offering pensions. Now the city is bankrupt, the pension fund is short, benefits are being cut and one of the system’s roughly 35,000 members, Coletta Estes, is suing the firm, contending it used faulty methods and assumptions that “doomed the plan to financial ruin,” the New York Times reported today. Gabriel Roeder’s job was to help Detroit’s pension trustees run a sound plan, she says, but instead the firm covered up a growing shortfall and encouraged the trustees to spend money they did not really have. Estes’ complaint contends that the actuaries did this knowingly, “in concert with the plan trustees to further their self-interest.” The lawsuit seeks to have the pension plan made whole, in an amount to be determined at trial, and to have Gabriel Roeder enjoined “from perpetrating similar wrongs on others.” Lawsuits like the one Estes filed have also been brought against Gabriel Roeder by members of Detroit’s pension fund for police and firefighters, and the fund for the employees of surrounding Wayne County. The plaintiffs cite damage growing out of Detroit’s financial collapse, but the litigation may have implications far beyond southeastern Michigan because of Gabriel Roeder’s status and influence in the world of public pensions. Its method for scheduling pension contributions is exceptionally popular and widely used by governments, although federal law does not permit companies to use it.

Detroit yesterday wrapped up its historic bankruptcy case, which began with contentious opposition from creditors and ended with eleventh-hour deals enabling the city to shed $7 billion of its $18 billion of debt and obligations, Reuters reported yesterday. In closing arguments, attorneys for the city and others worked to convince Bankruptcy Judge Steven Rhodes that he should permit Detroit to emerge from bankruptcy before Thanksgiving. They largely presented a view of harmony, emphasizing that the plan's string of bilateral settlements had brought the biggest-ever municipal bankruptcy to conclusion at record speed, mostly through the groundbreaking "Grand Bargain." Under the deal, foundations, the state and the Detroit Institute of Arts will pitch in funds to ease pension cuts and avoid selling the city's art collection. Judge Rhodes, who began the confirmation hearing on Sept. 2, said he will rule Nov. 7 on whether the 1,165-page plan is fair to creditors and feasible for the city to implement.

A federal judge in Detroit is expected to hear closing arguments starting today in the trial concerning the city’s proposed restructuring plan to trim $7 billion from its $18 billion in long-term obligations, The Wall Street Journal reported yesterday. Hon. Steven W. Rhodes is expected to rule the week of Nov. 3 on whether Detroit’s complex debt-cutting plan is feasible in helping the city fix its balance sheet as well as generally equitable to its thousands of creditors. Detroit is on the verge of a mostly amicable end to its historic bankruptcy case, with its largest holdout creditor unveiling a deal earlier this month to stop fighting and instead take a major stake in the city’s revival. Under the latest settlement, the city would knock down the soon-to-be vacant Joe Louis Arena, which will make way for redevelopment led by Financial Guaranty Insurance Co. The latest deal effectively would turn the bond insurer, which had once argued that the city’s debt-cutting plan was unworkable, into an ally. FGIC had also pushed for Detroit to consider selling its famed art collection to help pay off its debts.

A Luxembourg bank that extended nearly $50 million to San Bernardino, Calif., wants a federal judge to set a March 1 deadline for a plan to show how the city will get out of bankruptcy, Dow Jones Daily Bankruptcy Review reported today. The bank, Erste Europaische Pfandbrief-und Kommunalkreditbank AG, argued that giving city leaders a deadline to file that plan would pressure the city's police and firefighter unions to settle their disputes over proposed benefit cuts. Leaders in San Bernardino, a city of 200,000 residents that has been in bankruptcy for more than two years, said that they need to cut more than $20 million in labor costs. But negotiations with those two unions have broken down, the bank's lawyers said in documents filed Wednesday in U.S. Bankruptcy Court in Riverside, Calif.

A restructuring expert testified in bankruptcy court yesterday that Detroit's relatively fast move through municipal bankruptcy has resulted in costly creditor settlements and too little emphasis on fixing the city's broken operations, Reuters reported yesterday. Still, Martha Kopacz, who was appointed by Judge Steven Rhodes to assess the viability of Detroit's plan to restructure $18 billion of debt and obligations, concluded that the plan is feasible and that its underlying revenue and other assumptions are reasonable. "It's likely that the city of Detroit after confirmation of the plan of adjustment is able to sustainably provide basic services to the city without a significant probability of default," she testified. She gave the plan a passing grade, saying problems could emerge from the city council's budget, low training of staff, pension funding and other issues. Kopacz, a senior managing director at Phoenix Management in Boston, also said that the money the city will borrow to help it exit the largest-ever municipal bankruptcy and begin rebuilding "will enable the city to resolve its bad borrowing procedures and bad financial decisions of the past."