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Bureaucrat Benefits Twice Bankrupt City

Sunday March 16th, 2014   •   Posted by Craig Eyermann at 8:41am PDT   •  

bankruptcy-500-source-fbi Vallejo, California is a small city of over 115,000 people located on San Pablo Bay at the north end of the San Francisco metropolitan area, with a long history of providing lavish benefits for elected officials and government employees. So lavish, in fact, that the city was forced to file for bankruptcy back on May 23, 2008 because it could no longer pay for essential services for the public and the pensions of its public employees.

In response to the bankruptcy filing, the city’s public employee unions fought back in court to prevent any cuts to their pensions, but surprisingly, lost.

In the first ruling of its kind, a bankruptcy judge held the city of Vallejo, Calif. has the authority to void its existing union contracts in its effort to reorganize, holding public workers do not enjoy the same protections Congress gave union workers at private companies.

Municipal bankruptcy is so rare that no judge had yet ruled on whether Congressional reforms in the 1990s that required companies to provide worker protections before attempting to dissolve union contracts also applied to public workers’ union contracts

Legally, that March 13, 2009 decision freed the city to make much needed reforms to its public employee contracts and benefit plans, but such was the political power of the city’s public employee unions that the city’s elected officials, many of whom owed their positions to the support of the government employee unions, declined to act in the people’s best interest.

Instead, they chose to slash the city’s services, but never really touched the generous pensions paid to established members of the city’s public employee unions. The city went on to restructure its other spending and emerged from bankruptcy in August 2011.

But because its elected officials refused to be fiscally responsible in restructuring benefits for the city’s bureaucrats to be fiscally sustainable, the city of Vallejo is now headed back to bankruptcy:

The California city of Vallejo emerged from bankruptcy just over two years ago, but it is still struggling to pay its bills.

The main culprit: Ballooning pension costs, which will hit more than $14 million this year, a nearly 40% increase from two years ago.

Amid threats of legal action from the state’s pension giant, CalPERS, Vallejo did little during its nearly three-year stint in bankruptcy to stem the growth in its pension bills.

As a result, Vallejo continues to dole out large sums of money for retirees. Except for new hires, Vallejo’s police and firefighters can retire at age 50 with as much as 90% of their salary — for life. Public safety workers who retired in the last five years have average annual pensions of more than $101,000.

And the pension costs are expected to continue to rise, with a projected increase of up to 42% over the next five years.

That increase, combined with the declining fortunes of Vallejo’s citizens, ensures that bankruptcy proceedings will once again be in the city’s future, as the city will not be capable of either taxing or borrowing its way to solvency.

Denied their preferred approach to solving a fiscal crisis at the expense of others, the city’s elected officials owe it to the citizens of Vallejo to face up to the fiscal reality of their situation and begin acting in the general public’s best interest. Ending their crony relationships with the city’s public employee unions will be a good first step to a brighter future.

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March 2014