Last week, two insurers of Stockton's municipal debt argued in bankruptcy court that the city wasn't doing enough to cut the cost of its pensions even as it was suspending payments to bondholders. Indeed, as the chart below shows, Stockton's payments to Calpers are set to soar in the next decade, thanks to Stockton's huge pension liabilities. But San Bernardino is employing much the same strategy in bankruptcy court, according to its emergency fiscal plan.
The irony is that it is holders of pension obligation bonds in both cities that are getting stiffed to protect pensions. In 2005, San Bernardino floated $50 million in pension bonds to reduce its liability with Calpers. Stockton followed two years later with $125 million in pension bonds. Neither city did anything to reduce its pension benefits at the time, though officials in both should have been alarmed that they needed to borrow so much to sustain their pension systems. In fact, San Bernardino subsequently enhanced its pension benefits. Like Stockton, San Bernardino is now suspending payments on those bonds.
So far, there's been no motion in bankruptcy court in San Bernardino's case similar to that filed by two insurers of Stockton's bonds, which argued that the city hasn't made a good faith effort to reduce its pension costs. Assured Guaranty, a bond insured, backed Stockton's pension offering and is on the hook for $100 million. It is one of two insurers asking a judge to kick Stockton out of Chapter 9 unless the city seeks pension concessions from Calpers and Stockton employees.
But Assured has apparently backed some of San Bernardino's bonds. So has National Public Finance Guarantee Corp., the other insurer involved in the Stockton court case.
So far, there's been no motion in bankruptcy court in San Bernardino's case similar to that filed by two insurers of Stockton's bonds, which argued that the city hasn't made a good faith effort to reduce its pension costs. Assured Guaranty, a bond insured, backed Stockton's pension offering and is on the hook for $100 million. It is one of two insurers asking a judge to kick Stockton out of Chapter 9 unless the city seeks pension concessions from Calpers and Stockton employees.
But Assured has apparently backed some of San Bernardino's bonds. So has National Public Finance Guarantee Corp., the other insurer involved in the Stockton court case.
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