Monday, September 23, 2013

Who's Next? San Bernardino Faces Bankruptcy

In August 2012, San Bernardin, just an hour away, filed for bankruptcy protection. That comes on the heels of other cities and counties faced with a similar predicament. Rising costs, lower tax revenues, and unsustainable pension funds. Let's take a step back. Gone are the days where you could work your job for 40 years and retire comfortable with the company pension. if you're luck to even get a pension (many pensions are being lost through bankruptcy or worse) it's hardly enough to live on. That raises the need for Americans to be more diligent in saving for their retirement on their own. Nonetheless, if San Bernardino is up then who's next? A judge did grant the city time to figure out how to pay bills, the biggest burdens usually pensions. The city is now in bankruptcy protection as it is now deemed to be insolvent. Some, however, consider it a tactic to deal with cash flow problems.
The city must negotiate with its creditors and produce a final bankruptcy plan on which the judge will ultimately have to rule. Whether pension and other debt payments, including to holders of $50 million in pension obligation bonds, will have to be treated equally or not will remain a key issue - one that could eventually reach the U.S. Supreme Court.
San Bernardino stopped paying its $1.2 million bimonthly employer payments to the nation's largest pension fund for a year after declaring bankruptcy, the first California city to halt payments to the fund. It resumed paying Calpers last month but continues to renege on payments to other creditors, including holders of $50 million in pension obligation bonds. Calpers notes the city owes 14 million. They want the money. The judge is rightly asking, if they get paid, who doesn't? That would mean many many many jobs. We're not out of the woods yet, and many counties and cities are still facing the cash flow crunch 5 years after the 2008 debacle. Who's next? With notes from the legal office of San Diego corporate lawyer Cecilia Chen.