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Voters in bankrupt San Bernardino sweep old guard from power

A concrete sign marking the city limits for San Bernardino, California is seen July 11, 2012. REUTERS/Alex Gallardo
A concrete sign marking the city limits for San Bernardino, California is seen July 11, 2012. REUTERS/Alex Gallardo

By Tim Reid

(Reuters) - Residents of bankrupt San Bernardino, California on Tuesday voted to complete a rout of the city's pro-union old guard, electing business-friendly pragmatists who have pledged to try to reduce pension costs and take on vested interests.

As San Bernardino enters into a fourth month of mediation with its creditors, the biggest of which is Calpers, California's giant retirement system, voters on Tuesday elected Carey Davis as the crisis-hit city's new mayor.

Davis, a businessman and political novice, ran in part on a campaign to reduce the city's pension obligations. In an interview in November, when he became one of two mayoral candidates, he said the city had to cut spending on police and fire departments, currently more than 70 percent of the budget.

"You have to roll the pensions back," Davis said in November. Davis did not return calls on Wednesday.

Davis will play a big role in how the city approaches negotiations with its creditors. He will be part of a small team of elected officials who represent the city as the debtor in the bankruptcy.

Along with Detroit, the biggest U.S. city to seek Chapter 9 protection, San Bernardino is likely to set precedent on whether retirees or Wall Street bondholders suffer the most when a city goes broke.

Davis defeated a San Bernardino political veteran, Wendy McCammack. She ran for mayor despite having been ousted by voters from her own council seat in a recall election in November.

Also on Tuesday, another political novice, Henry Nickel, became a new council member, saying he wanted to take on special interests. Nickel's biggest challenger was Randy Wilson, a police sergeant endorsed by the police union, the only candidate for that seat who did not support pension reform efforts.

Tuesday's results follow elections in November, when the balance of power in San Bernardino's seven-member council shifted dramatically away from an old guard reluctant to take on unions and reduce pension obligations.

After Tuesday night, six of seven council members are now on record as saying they want to explore reducing San Bernardino's pensions, along with Davis, the new mayor, and a new city attorney, Gary Saenz.

POSSIBLE HARDER LINE ON CALPERS

San Bernardino, a city of 212,000 that lies 65 miles east of Los Angeles, filed for bankruptcy in August 2012. Its biggest creditor is the California Public Employees' Retirement System (Calpers), America's largest public pension system with assets of $277 billion.

"It sure looks like the voters of San Bernardino wanted some change and that's what they have gotten," said Michael Sweet, a bankruptcy attorney with Fox Rothschild in San Francisco who is not involved in the San Bernardino case.

Sweet noted that the city members in charge of the bankruptcy were almost entirely different to those that made up the team when San Bernardino was found eligible for Chapter 9 protection last year.

"Whether that means the city could take a significantly different direction in the bankruptcy remains to be seen," Sweet said. "It's conceivable they will take a harder line when it comes to concessions that may be made to Calpers."

San Bernardino suspended payment of its employer contributions to Calpers for a year after declaring bankruptcy in August 2012, the first city to make such a move.

The city has been in mediation talks with its creditors since November, which are due to end this month. Those talks are subject to a judicial gag order.

(Reporting by Tim Reid; Editing by Mary Milliken and David Gregorio)

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