Thursday, May 08, 2008

Radically Overgenerous Benefits That Cannot Be Paid Will Not Be Paid


Michael Shedlock:

Cities and municipalities have been promising government workers more in salaries and pension benefits than can possibly be met. Unfunded liabilities are mounting and the ticking time bomb finally went off. What had to happen, did. Vallejo California Declared Bankruptcy.

The North Bay city of 117,000 now heads into largely uncharted territory, as no California city of this size has ever opted for this route. "This has been a long frustrating process for everyone," said City Manager Joseph Tanner. "There are no winners here tonight."

My Comment: I disagree. Taxpayers of Vallejo are winners, perhaps more so than if a deal was struck.

After about four hours of discussion and public comment from the standing-room-only crowd, the council voted 7-0 to approve Tanner's recommendation to declare Chapter 9 bankruptcy protection as a means to reorganize its finances, which have been shattered by spiraling public employee salaries and the plummeting housing market.

The move allows the city to freeze its debts while maintaining city services. Police, fire and other unions and many in the audience were outraged at the move, accusing the council of poor leadership.

My Comment: There was indeed poor leadership in Vallejo. Failed leadership is decades old. Year after year Vallejo has agreed to contracts the city could not afford. This move attempts to correct the error.

The city and its police and fire unions held a final contract negotiating session Sunday but failed to reach an agreement before Tuesday's City Council meeting.

The city and its public safety unions have been at the bargaining table for about two years. The city is asking for its police and firefighters to take salary, benefit and staff cuts, while the unions say any further cuts would endanger public safety as well as the safety of the police and firefighters.

My Comment: Exactly how does a cut in pay or benefits endanger public safety or the safety of the workers? Clearly it doesn't. This was all or nothing hardball by the unions and it could be a fatal mistake. Pension benefits will now be under court review. Anything goes.

Vallejo spends 74 percent of its $80 million general fund budget on public safety salaries, significantly higher than the state average. The generous contracts are the result of deals struck in the 1970s, following a police strike that left the city in turmoil.

My Comment: If I was a Vallejo taxpayer, this is what I would be asking: What special talents does the firefighter and police force in Vallejo have that merit "significantly higher than the state average" wages and benefits?

The City Council had been split on whether to declare bankruptcy. Some, including Mayor Osby Davis, said the stigma would threaten the city's long-term economic development and discourage investors, while others said it would give the city time to restructure its budget and offer protection from creditors.

What's unknown is whether bankruptcy will dissolve the city's labor contracts, which most City Hall staffers say is the primary reason for the city's financial mess. A judge will have to decide whether to dissolve the contracts.

My Comment: Taxpayers everywhere should be rooting for those contracts to be dissolved. And if that happens, it will set a nice precedent for renegotiating all unaffordable government contracts, which is to say thousands of city and municipal contracts across the nation.

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