City of San Bernardino plan of adjustment takes effect as of June 15

By Caroline Salls

Pittsburgh, June 20 – The City of San Bernardino, Calif., said its Chapter 9 plan of adjustment took effect on June 15, and the city has begun making distributions to creditors under the plan.

The plan was confirmed on Feb. 8 by the U.S. Bankruptcy Court for the Central District of California.

“The proceedings guided us through a process of rebuilding and restructuring, and we will continue to rebuild and create systems for successful municipal operations,” mayor R. Carey Davis said in a city news release.

“We will continue to dedicate our attention to improving service delivery, quality of life and attracting business investment to our community.”

Since filing its initial plan, San Bernardino said it has continued to make a number of improvements to its finances, service models and governance structure.

Major elements of the plan include annexing into the County Fire District, contracting for refuse services, and investing city resources to the strengthening of the police department.

As previously reported, the plan is based on settlements reached with most of the city’s principal creditors.

Among the settlements reached with creditors are an agreement with the California Public Employees’ Retirement System (CalPERS) regarding the city’s continued funding of employee pension benefits; a settlement with the official retiree committee appointed in San Bernardino’s case regarding the continued funding of retiree pensions and the restructuring of retiree health benefits; settlements with the police, firefighters and other employee unions; and settlements with the holders of city-issued bonds.

Creditor treatment

Under the plan, the city will distribute 1% to holders of general unsecured claims.

Holders of refunding bond claims and refunding certificate of participation claims will be paid in accordance with relevant indentures and trust agreements.

Harriman project and pavement project secured claims will be paid in accordance with related project financing documents.

The collateral securing the city’s payment obligations under a Police Station AC financing agreement will be relinquished to Western Alliance, and the city will have no further obligation under the financing agreement. Western Alliance will have a general unsecured claim for any unpaid amounts due under the financing agreement.

Burgess secured claim documents will be amended to extend the maturity date until 2022, and a balloon payment will be amortized over that three-year period.

The city will continue to apply restricted revenues to pay restricted revenue bond and notes payable obligations in the ordinary course of business.

CalPERS will be paid in accordance with a settlement, which provides for payment of some arrearages and additional administrative costs to CalPERS and a covenant not to impair CalPERS under the plan.

In connection with the claims of Public Agency Retirement System (PARS) participants under PARS plans, the city proposes rejection of the PARS plan and a waiver by the city of any and all claims to the funds held within specified trusts as of the date of termination of the PARS plans. Also, the city will make a distribution of $290,000 on the later of the plan effective date or July 5, 2017 and a distribution of $290,000 on the later of the effective date or July 5, 2018 to PARS participants.

Under a pension obligation bond settlement, the city will make installment payments over a 30-year term, starting one year after the plan is confirmed. The city will make payments of $1 million to $2.5 million per fiscal year until 2046 instead of the $3.3 million to $4.7 million per fiscal year owed under the terms of the 2005 pension bond agreement.

Holders of convenience class claims will receive the lesser of the amount of their claim and $100.

City budgets

On June 21, 2017, the mayor and city council are expected to adopt a $160 million city operating budget, as well as a $22.6 million capital improvement budget.

Within those budgets, the city said it will increase staffing and equipment replacement in the police department, initiate a new Violence Intervention Program, hire additional maintenance staff and increase the community development staff to facilitate development opportunity.

San Bernardino said the capital budget provides for new street rehabilitation, street light and traffic signal repair, storm drain and median maintenance and several park facility improvements.

The city said the end of its bankruptcy has already led to a noticeable increase in an interest in business and development investment, and San Bernardino’s management team is also taking advantage of the city’s improved post-bankruptcy financial status to recruit management staff to fill important vacancies in public works, housing and economic development.

At the same time, the city said every effort is being made to establish efficient service delivery systems to maximize the benefit of San Bernardino’s limited resources.

In addition, city government offices will return to being open five days per week on Aug. 7.

San Bernardino filed for bankruptcy on Aug. 1, 2012. The Chapter 9 case number is 12-28006.

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