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Calpers to go unchallenged in San Bernardino bankruptcy plan

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(Bloomberg) — San Bernardino said it won’t try to reduce its obligations to the California Public Employees Retirement System (CALPERS), despite a recent ruling opening the powerful pension fund to such challenges in bankruptcy court.

A lawyer for the town revealed its decision yesterday, less than seven weeks after the judge in Stockton, California’s municipal bankruptcy made it easier to impose cuts on Calpers, the biggest public worker pension in the U.S.

“The 800-pound gorilla in the case is Calpers,” the San Bernardino attorney, Paul Glassman, said in court.

San Bernardino filed for bankruptcy in August 2012 and cut a deal with Calpers in confidential mediation sessions that began last year. Details of the agreement had been secret until Nov. 17, when the city outlined the terms in a court filing.

As part of the deal, the city agreed to file a debt-adjustment plan by September, a date that was quickly rejected by U.S. Bankruptcy Judge Meredith Jury at a hearing yesterday in Riverside, California. She demanded a detailed proposal by May 30. Nothing short of an earthquake that leveled the city would persuade her to move the deadline, she said.

Jury also questioned the effectiveness of mediation that took up nine months only to result in Calpers getting paid in full. She asked whether San Bernardino had a strategy for cutting debt and getting out of bankruptcy. ‘Game Plan’

“I would hope by 28 months into the case that the city would have a game plan,” she said at the hearing.

Creditors including bond insurer Ambac Assurance Corp. have said it may be impossible to put together a workable plan without cutting pensions and other labor costs.

San Bernardino, a city of about 209,000 people some 60 miles (97 kilometers) east of Los Angeles, was the third California city to file for bankruptcy in a three-month span in 2012. It blamed a fiscal emergency brought on by a $46 million budget shortfall.

Voters this month rejected a proposal to alter the charter to make it easier to negotiate with police and firefighters unions. The reform had been a key part of San Bernardino’s bankruptcy strategy, Glassman said.

The setback will force the city to consider other ways to cut costs, including replacing its police and fire departments by contracting out for those services with nearby agencies.