Vallejo Bankruptcy - Frequently asked questions
The City of Vallejo is in bad financial shape due to years of mismanagement by the City Council, but according to an independent expert and the city's own documents, the city did not need to declare bankruptcy. The City of Vallejo's most recent financial report stated that the city has $475 million above the bills it owes as well as $130 million in cash and other investments. The City could also recoup millions of dollars by collecting outstanding loans.
An independent audit by Roger Mialocq of Harvey Rose & Associates, one of California's premier municipal accounting firms, has said: "It certainly appears to me that it is absolutely not necessary for Vallejo to file for bankruptcy in 2008-2009. We have identified many opportunities for the city to increase revenues and decrease expenses by doing things that many other cities and counties throughout California are already doing." - San Francisco Chronicle, May 14, 2008
The city is using bankruptcy to break employment contracts with its employees. The City Council of Vallejo has intentionally created a budget that makes it appear as though it cannot pay its bills to justify selectively breaking commitments it made to its employees and retirees.
In addition, Vallejo has suffered from years of poor financial management at the hands of the City Council and the city manager. Although the consultants at Harvey Rose and Associates provided Vallejo with a clear road map of how to avoid bankruptcy, the City Council and City Manager have largely ignored this advice. Vallejo also has very expensive managers who have not offered to cut their own salaries. Vallejo's City Manager makes more than $450,000 in total compensation and many other top managers make in excess of $100,000. The current and past councils have stripped the General Fund of cash by transferring tens of millions of dollars from to many other funds within the city.
The coalition opposing bankruptcy is comprised of Vallejo residents, city retirees and current employees represented by the International Association of Firefighters (Local 1186), the Vallejo Police Officers Association and the miscellaneous city employees represented by the International Brotherhood of Electrical Workers (Local 2376).
City employees have attempted to address the city's budget problems by giving up substantial parts of their salaries and benefits. In March of 2008, employees agreed to $6 million in salary cuts and they recently proposed cutting another $10 million from their salaries—an offer that the City of Vallejo rejected. The City of Vallejo has admitted in court documents that accepting the union's offer would have prevented the City from having to file bankruptcy. The City rejected this offer because their goal is to break union contracts instead of keeping the city out of bankruptcy.
The International Brotherhood of Electrical Workers (IBEW) is a union that has branched out from its roots in the electrical trades to represent a broad set of skilled, technical and administrative workers across many industries. In Vallejo, IBEW Local 2376 represents hundreds of city employees in 70 different job classifications vital to the city's day-to-day operations. IBEW members provide clean and safe drinking water, promote safe and well-maintained streets, provide critical administrative assistance, support the development of new and revitalized building and housing projects and provide emergency dispatch services, to name just a few critical job functions.
Bankruptcy hurts all city taxpayers and families. According to the Vallejo City Manager, taxpayers can expect to pay $2 million for high-priced bankruptcy attorneys and higher interest payments to its creditors. Other bankruptcy experts estimate that the city could spend even more money on bankruptcy attorneys. Every dollar spent on attorneys is money that could have been spent on critical public services like new libraries, reopening fire stations and improving roads.
Just as important, cuts to city safety services mean that insurance rates rise for homeowners and small business owners. The bankruptcy also shows that the average citizen is getting extremely poor leadership from the Vallejo City Council. Even during these tough economic times, countless other cities have not declared bankruptcy. The City Council has also made it more difficult for new business and development to locate in the city. Bankruptcy will only make matters worse.
Vallejo residents pay less per capita for public safety than the vast majority of residents of many other Bay Area cities. A survey by the Vallejo fire department revealed that Vallejo residents paid less for fire protection than 16 out of 18 Bay Area jurisdictions, including Palo Alto, Alameda County, Richmond, Berkeley, Benicia and Contra Costa County, to name but a few. When it comes to police services, Vallejo residents also pay less than 11 out of 14 comparable Bay Area cities on a per capita basis.
No. In fact, according to a recent memo from the Vallejo City Manager to the City Council, public safety makes up only 27% of the budget. City leaders have confused many people by claiming that public safety accounts for 75% of the General Fund in the budget. In recent years, the city has transferred many city operations out of the General Fund, driving up the public safety proportion of the General Fund. The city now has literally hundreds of budget funds. The bottom line is that public safety payments make up only about one quarter of the city's total spending, which is much less than other cities of our size.
Over the last few years, Vallejo has cut more than 30 percent of its firefighting force and closed two fire stations, increasing emergency response times. These dramatic cuts have resulted in many firefighters being forced to take additional overtime shifts to make up for the lack of personnel.
Vallejo has also cut 31 police officer positions. The city's bankruptcy has caused many Vallejo police officers and firefighters to quit or retire, leaving our city with fewer experienced officers who know the community.
The City Council of Vallejo has not offered a substantive explanation for their decision to sell a 190 acres of bay front Mare Island property for only $1 to Touro University. While the City Council hopes Touro University may some day create revenue, the official staff report to the City Council says that the project is "revenue neutral," which means Vallejo taxpayers cannot expect to receive ANY funding or income from this giveaway.
Even though nobody questions the benefits of research at Touro University, many have questioned the wisdom of giving away substantial portions of property when the city desperately needs the revenue.
Retired city employees could be hurt by bankruptcy because the City of Vallejo is attempting to reduce the health care coverage packages that apply to both current and former employees. The City Manager has also threatened to take employees' personal retirement accounts that the city is holding.
All city employees must contribute 9% of their paychecks to their own retirement funds. However, the taxpayers of Vallejo pay for the City Manager's entire retirement.
It is the city's interim budget while bankruptcy proceedings take place. The Pendency Plan is freezing city employees' scheduled raises this year, a plan that will save far less than what was offered by the employees' proposal to help keep Vallejo out of bankruptcy.
It is unknown how long the bankruptcy court proceedings will take but the City of Vallejo and its taxpayers will likely feel the financial repercussions for decades.
The City Council is paying all of its other bills except that which is owed to its employees under existing contracts. This illustrates how the City Council is using bankruptcy to break employee contracts.
Dozens of highly qualified and experienced employees have left the city this year due to bankruptcy. Many retired when the manager threatened to not honor the retirement benefits promised to employees who served the city for many years. In order to protect their families, many employees are seeking employment in cities that pay lower salaries but which live up to the contracts.
If Vallejo breaks its union contracts or modifies them in bankruptcy, that will create damage claims that have to be paid as part of a plan of arrangement in the bankruptcy. A party that breaches a contract—even by rejecting it in bankruptcy-- is required to compensate the other parties harmed by the breach. In this case, employees are entitled to seek compensation in bankruptcy court from the city for its failure to fulfill its employment contracts. These claims will be for monetary damages to individual employees / retirees and the employee groups as a whole, and depending on the changes to the contracts may total tens of millions of dollars that may have to be paid years into the future. In other words, the City will eventually have to pay the employees for the changes made to the contracts in bankruptcy, but if it had only accepted the proposal offered by the employees to cut their own salaries and benefits, the City would not ever have had to pay those costs.
