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Going Bankrupt in Vallejo

Bankruptcy is a damn nuisance.  But it is a boon to the fiscally irresponsible, notably town councilors and municipal officials.  The city of Vallejo in the Bay Area has filed for bankruptcy protection
(May 23) under Chapter 9 of the Banking Code through its city manager, fearing a queue of hungry creditors.  A report on the council’s special meeting in February predicted insolvency in late April.

The seven-member City Council authorized the move unanimously on May 6, thereby joining a list of 500 or so municipalities throughout the
US which have invoked the measure since the Great Depression.  Such an move reorders debt arrangements while still financing operations.
Vallejo remains to date the largest town in California to have taken the plunge, after Orange County (1994) and Desert Hot Springs (2001).

Reasons for this insolvency crisis in this town of 120,000 vary.  Officials and councilors have found a key culprit: the city’s supposedly generous pay benefits to police officers and firefighters.

These, it is claimed, have pushed the deficit to $16 million at the start of the new fiscal year in July.  Councilwoman Stephanie Gomes might ‘value’ the police forces and firefighters, but she can’t help
turning her nose up at them.  They are the ones who ‘can afford to live in Marin and Napa’.  The ‘very hardworking, blue-collar residents
of Vallejo’ have paid the penalty.

Some balance is in order here.  Salaries may be high, but the working hours are commensurately long and wearing.  According to the San
Francisco Chronicle (February 21), rehiring in the firefighting forces has not kept apace with retirements since 2001.  Overtime sessions are
unavoidable, with 96-hour shifts, punctuated by a two-day break, common.

Cities, like common mortgage holders, have been struck down by the credit squeeze, entering into labor contracts now deemed unsustainable.  Tax revenue has also shrunk by $2 million, with drops
in revenue recorded in development fees, property tax and sales tax. Vallejo is, to use the words of Capt. Jon Riley, vice president of the
Fire Fighters Union Local 1186, the ‘poster child for mismanagement’.

According to Gomes, who was interviewed in February this year, ‘We’ve been spending more than we’ve been making for 20 years and it’s time
to pay the piper.’  The vast portion of the city’s general fund (some $74 million) goes towards public  safety contracts (fire and police
services), though this is not unusual for cities in California.

Unions and various associations are skeptical about the council’s moves. The municipality had filed for bankruptcy protection and called it necessary to avert the catastrophe of insolvency.  Union management is making the argument, with some grounds, that the case for insolvency has not been made out. Individuals like Mat Mustard, vice
president of the Vallejo Police Officers Association, are irate.

The meeting proceedings of February discuss the consequences of such a suit.  ‘Bankruptcy will not create additional revenue.  A bankruptcy
filing may allow the City to take actions contrary to existing contractual obligations that would allow continued General Fund operations.’  An argument might well be made that bureaucratic incompetence has been insulated.

Legal teams who specialize in bankruptcy are beside themselves with joy.  Other municipalities may well follow Vallejo.  Mark Levinson, a
bankruptcy lawyer retained by Vallejo is smacking his lips.  ‘Vallejo is not the only city in California or the U.S. that is saddled with
employee contract that are burdensome.’

BINOY KAMPMARK was a Commonwealth Scholar at Selwyn College, University of Cambridge.  He can be reached at bkampmark@gmail.com.