Posted on 04/12/2013 9:20:33 AM PDT by Uncle Chip
LOS ANGELES (Reuters) - Bankrupt San Bernardino will resume paying into the state pension fund on July 1, but the California city will continue to renege on other debts including payments to bondholders, according to a new budget released late Thursday.
Nearly a year after it halted contributions to America's biggest pension fund, San Bernardino will resume payments to Calpers at the start of the new fiscal year - but continue to not pay other creditors, according to the budget.
San Bernardino will not make interest and principal payments on $50 million in pension bonds issued in 2005, according to the new budget. The city council on Monday will review the budget, a blueprint for how the city proposes to manage its finances since declaring bankruptcy last August.
San Bernardino's decision to resume its $1.2 million, bimonthly employer contributions to Calpers while continuing to defer pension bond debt will intensify the battle between the pension fund and Wall Street bondholders.
The case has been bogged down in disputes about the scope of documents the city must provide to its creditors. Unlike Stockton, where a judge approved the city for bankruptcy last week, a decision on San Bernardino's eligibility for Chapter 9 protection still appears some way off.
Both San Bernardino and Stockton are considered test cases in the titanic battle over whether municipal bondholders or current and retired employees will absorb most of the pain when a state or local government goes broke.
Calpers, which manages $256 billion in assets, is San Bernardino's biggest creditor, with the holders of its $50 million in pension bonds its second-biggest creditor. Calpers is opposing San Bernardino's quest for bankruptcy, the only city to have ever halted payments to the fund.
(Excerpt) Read more at news.yahoo.com ...
Someone on MSNBC or maybe a lib read here was recapping the lib version of what happened in CA and concluded that all CAs problems were due to the CA GOPs successfully blocking tax increases over many years and decades, and now that the GOP has been FINALLY swept out of most state positions CA /Jerry Brown raised a number of taxes prompting its big turnaround that we see today.(CA State not the Cities)
Have to watch this one, He did raise the sales tax as did lib O Malley in Maryland(another single party state), a very regessive tax,(I buy using Amazon)
Makes you wonder who will buy their bonds next, the same unions?
That would be my guess.....keep the float going as long as possible. Kinda reminds us of how we now handle our national debt : )
The national debt is much easier because the POTUS+Senate oppoint the Fed Chairman who creates unlimited $$$ to load back to them ie US treasury to spend.
Correct.
The same retired CA who are getting the bondholders money probably know that investing back in themselves (their city bonds) is a sure loss, they probably buy bonds from some place in TX instead, a GOP county.
A better move, for sure.
The “tax exempt” status should be removed from ALL governmet debt; it is just one more encouragement that polticians have in creating excess debt in the first place - because they can attract investors with the tax exempt earnings; something denied to private borrowers and something that ought to be denied the politicians. The argument that we would be paying “more” interest makes the erroneous assumption that we need and would be making us much borrowing even though the interest rate we had to pay was higher.
Calpers is a giant government monopoly in California. No matter what any municipality in California did wrong, I have no sympathy for Calpers. Like Freddie and Fannie it should be “sold off in pieces” to a bunch of newly privatized non-profit, non-polictical pension investment outfits that afterward any enterprise, governmental or non-governmental was free to participate in, or not, as they chose. I say “non-profit” because like the old “mutal” insurance company model the “owners” are the policy holders and all “gross profits” (capital gains and investment earnings) minus all needed operations costs and reserves that should not be distributed accrue to the pension accounts of the pension policy holders - they are the investor owners. And, as with any “mutual” insurance company it does not mean it is not competitive or not out there competing for business.
This is a tough one. As much as I hate unions, I have a hard time sympathizing with someone buying San Bernardino bonds in 2005. It has been obvious for a LONG time that California & its cities are in a race to hell...
I am not in disagreement that muncipal bond buyers are responsible for doing their own due diligence, and as more see that “municpal bond” does not guarantee safety more will do better due diligence and cities that make unreasonable pension promises will get the lack of financial respect they deserve in the bond markets.
However, Calpers as a government near monopoly is a different story and I have no sympathy for it.
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