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San Bernardino, Calif., may become the first bankrupt city to force the biggest U.S. public pension fund to wait in line with other creditors while it struggles to regain solvency, Bloomberg News reported today. San Bernardino and the California Public Employees’ Retirement System (Calpers) will ask a judge today to decide the legality of the city's decision to defer about $13 million in pension payments for policemen, firefighters and street cleaners. Calpers argues that San Bernardino cannot defer its payments to the fund, which uses the money to help cover the monthly pensions of retired city employees. Allowing the deferral would be unfair because Calpers may still be required to pay those retirees $3.75 million a month, the fund said in court papers filed Dec. 17.

To learn more about issues in chapter 9, be sure to pick up the latest ABI publication, Municipalities in Peril: The ABI Guide to Chapter 9, Second Edition, now up for pre-order in ABI's Bookstore.

Bankruptcy Judge Thomas Bennett blocked a legal bid to force Alabama's Jefferson County to keep running a hospital that serves the poor, which the county says it can no longer afford to operate, Reuters reported yesterday. Birmingham, the state's largest city and located in Jefferson County, had asked Judge Bennett to exempt it from a ban on lawsuits against the County so that it could press a claim in state court that the county's underused Cooper Green Mercy Hospital must maintain in-patient and emergency services. Birmingham and county residents do not want to lose the hospital's services. But Judge Bennett said in a 37-page opinion that Birmingham was unlikely to win its case in state court and that he saw no reason to lift automatic stays against lawsuits that Jefferson County has had in place since its landmark, $4.23 billion bankruptcy petition filed on Nov. 9, 2011.

To learn more about issues in chapter 9, be sure to pick up the latest ABI publication, Municipalities in Peril: The ABI Guide to Chapter 9, Second Edition, now up for pre-order in ABI's Bookstore.

Detroit Mayor Dave Bing yesterday outlined a 10-point program to raise revenue and cut expenses totaling $50 million in the city's latest effort to heal its finances, Reuters reported. The "revenue enhancement initiative" includes more effective collection of property and income taxes. Also, the city will be more aggressive in collecting on a variety of programs, including delinquent licensing fees and parking tickets, as well as fighting workers compensation fraud. The city also wants to sell a $4 million building on the downtown riverfront to the United Auto Workers union, but the price has yet to be negotiated. "This is just the beginning," said Bing, indicating that there will be more rounds of cost-saving initiatives.

To learn more about issues in chapter 9, be sure to pick up the latest ABI publication, Municipalities in Peril: The ABI Guide to Chapter 9, Second Edition, now up for pre-order in ABI's Bookstore.

The biggest U.S. pension fund argued in a court filing that its status as a state agency gave it sweeping powers in the San Bernardino, Calif., bankruptcy case and that the federal jurisdiction that applies in bankruptcy should be overridden by the state's rights, Reuters reported yesterday. The California Public Employees' Retirement System latest legal argument, filed late on Monday, contends that bond insurers who are opposing CalPERS in San Bernardino are actually supporting its legal position in another big municipal bankruptcy in Alabama. San Bernardino, a city of 210,000 about 60 miles east of Los Angeles, filed for bankruptcy protection on Aug. 1. Since then, it has halted its bi-weekly, $1.2 million payment to CalPERS, saying that it wants to defer any payments to the fund until fiscal year 2013-2014.

Michigan Governor Rick Snyder (R) yesterday appointed a financial review team for Detroit, the latest development in a process that could lead the city to file for biggest-ever U.S. municipal bankruptcy, Reuters reported yesterday. "Given the financial crisis that continues to grip the City of Detroit, we must move quickly to ensure city residents have continued access to essential services they expect and deserve" Snyder said. Frustrated by the slow pace of fiscal reforms and worried by Detroit's long-term outlook, state official earlier this month launched a state review. Last week, the first part of the process - a preliminary review of Detroit's cash-strapped finances - was completed in just four days and concluded in a report that the city had "a serious financial problem." The report said that "due to financial reporting problems, city projections change from month to month making it difficult to make informed decisions regarding its fiscal health."

A high-stakes legal battle has intensified as the largest U.S. pension fund filed court papers denouncing the financially troubled city of San Bernardino for what it called a "sham" bankruptcy and accused the city of "criminal behavior" in withholding payments to the pension plan, Reuters reported Sunday. The filing on Friday by the California Public Employees' Retirement System, or CalPERS, came 10 days after San Bernardino officials traveled to Sacramento to plead with top CalPERS executives for more time to make payments. CalPERS, which manages $241 billion in assets and serves many California cities and counties, said in its legal filing that San Bernardino appears to have been operating for more than a decade without necessary financial controls and lacks even basic mechanisms such as monthly cash-flow reports. San Bernardino is broke and can barely make payroll, city officials have said. It has not made its $1.2 million biweekly payments to CalPERS since the bankruptcy filing and now owes at least $8 million, in addition to a long-term debt to the fund that the city pegs at $143 million.

The Republican-led Michigan Legislature cleared the way Thursday for GOP Gov. Rick Snyder to sign a replacement for an emergency manager law struck down by voters, delivering another punch to Democrats still reeling from this week's rapid passage of right-to-work legislation limiting unions' power, the Associated Press reported yesterday. On the final hours of the legislative session that capped an acrimonious week in the state capital, the Senate approved the legislation mostly along party lines. It contains key provisions from a law rejected by voters in November, but includes more choices for local school districts and communities deemed by the state to be in a financial emergency. The new version proposed by Snyder and GOP legislative leaders requires financially troubled governments to choose from four mandatory options: Accept an emergency manager, undergo bankruptcy, enter into mediation or join the state in a partnership known as a consent agreement — similar to the current one involving Detroit. Critics say the options menu is a false choice, because each is trip-wired to ensure the same thing that voters rejected at the polls: state-imposed oversight.

The city and county of San Bernardino are set to skirmish in bankruptcy court in January over more than $1.9 million in landfill payments that the city has stopped making and the county wants to collect, The (San Bernardino) Sun reported yesterday. In its legal brief, the county seeks to lift a stay that otherwise stops creditors from suing a city while it's in bankruptcy court for missed payments dating back to July—calculated at $1.9 million before November and December were included. City officials have informed the county that they don't intend to renew the 25-year contract for use of the county landfill when it expires Dec. 16, according to the county. While city officials have protested that there's no money available to pay the fees associated with the Waste Disposal Agreement, money set aside for trash should be used for trash instead of bankruptcy-related expenses, say attorneys Jeffery Hermann and John Farmer of Orrick, Herrington & Sutcliffe LLP in Los Angeles. "Apparently, the city believes that the taxpayers of the county should be shouldering the costs of the city's ongoing chapter 9 case," they said. The hearing is scheduled for 10 a.m. Jan. 22 at U.S. Bankruptcy Court in Riverside in front of Judge Meredith Jury.

The California Public Employees' Retirement System is trying to rewrite the rules for bankrupt cities, claiming that it should get paid before almost everyone else, including bondholders, Bloomberg News reported yesterday. The biggest U.S. public pension fund would set a legal precedent should courts adopt Calpers's position that, as an arm of the state, it is exempt from rules that apply to other creditors in the chapter 9 bankruptcy cases of San Bernardino and Stockton. A Calpers victory would threaten public services in a city trying to reorganize in bankruptcy, or in an extreme case, cause a city to disincorporate, said attorney James E. Spiotto. "Chapter 9 was never intended to cause the liquidation of a municipality or the reduction of services," said Spiotto. "What Calpers is doing is threatening the basic tenet of Chapter 9." Pension costs for retired public employees are straining local governments from California to Rhode Island. In the private sector, when bankrupt corporations fall behind on such payments, the shortfall is considered an unsecured debt owed to the pension fund. Calpers is arguing that all of its debt should be treated as an administrative claim, which means only a handful of creditors would be paid first, such as the lawyers and financial advisers working on the bankruptcy case. "What Calpers is trying to do is rewrite the priorities of the Bankruptcy Code," said Kenneth N. Klee, a professor at UCLA School of Law who helped revise chapter 9 of the U.S. Bankruptcy Code in the 1970s as a lawyer working for Congress. "The city's failure to make these contributions is a violation of state law," Calpers said in court papers. However, San Bernardino officials counter that if the city is forced to pay Calpers, "the city's ability to continue to function would be seriously threatened."