Muni Investors Vs. California Public Workers
By Steven Malanga
In
2005 the city of San Bernardino borrowed $50 million using pension
bonds in an effort to shrink its massive debt with the California Public
Employees' Retirement Systems (CalPERS). Two years later Stockton
floated nearly $125 million in pension bonds because it faced the same
pressures as San Bernardino. Neither city reformed or reduced its
pension benefits at the time in order to stop the continuing rapid
growth of retirement liabilities. In fact, San Bernardino subsequently
enhanced pensions.
Both cities are bankrupt today and their initialbankruptcy
plans include suspending payments to bondholders, including to those
who bought its pension obligation bonds. At the same time the cities are
doing little to rein in pension costs. Stockton forecasts that its
pension payments to CalPERS will nearly double by the end of the decade.
In large part that's because CalPERS has threatened to tie up in court
any California municipality that attempts to reduce its pension benefits
to current workers.
Both cities are bankrupt today and their initial
