San Bernardino bankruptcy filing to set a precedent

San Bernardino and its largest creditor, California Public Employees’ Retirement System, have made significant progress in recent negotiations, according to Reuters. The negotiations center on how much the city will pay the pension fund as part of the city’s bankruptcy filing. The city filed for protection under Chapter 9 of the bankruptcy law in August of 2012, with a budget deficit of $45 million.

The San Bernardino bankruptcy case is particularly significant in light of the ongoing Detroit bankruptcy, according to the news source, and lawmakers are looking to the San Bernardino proceedings for precedent as to whether it is the Wall Street bondholders or the Detroit pensioners who should be given priority when a city files for bankruptcy. The federal judge in charge of the Detroit proceedings made a ruling in December that the city’s obligation to pay pensions in full was not unalterable, and as a result, Detroit’s emergency manager proposed a bankruptcy plan to cut the city’s pension payments.

According to San Bernardino’s The Sun, all of the groups involved in that city’s bankruptcy mediations reported progress, with the marked exception of the firefighters’ union. Details regarding the mediation are scarce because of the judicial gag order made by U.S. Bankruptcy Judge Meredith Jury, but mediator Gregg Zive, a retired U.S. bankruptcy judge, was allowed to make a brief statement.

“Significant and substantial progress has been made as a result of extended and good faith negotiations between the City and CalPERS, and such progress lays the foundation for negotiations between the City and other parties,” said Zive. “Negotiations with other parties are still required and there will be a lot of hard work to be done by those parties.”

Many creditors, including the police union, are in agreement, according to the news source. Once the city figures out how much it will owe CalPERS, other creditors will know how much is left to be negotiated over.