Postcards From the Future: Checking in on Vallejo’s Bankruptcy

As the largest municipal bankruptcy since Orange County in 1994, Vallejo, California, remains worth watching. It filed for bankruptcy last May, and it is steadily renegotiating labor contracts with its unions, and then it plans to move on to debtholders.

How is it doing? The city has cut new deals with two of its four unions, thinks its close on another, but it looks like the fourth union will test the courts. And that’s the key part: There is much nervousness about the extent to which Chapter 9 bankruptcy provision permit municipalities to force renegotiated wage and benefit deals. Labor union lawyers say no, but the law is far from clear. If Vallejo unions don’t fold before the courts rule, and if the courts rule that Chapter 9 permits these muni deals to be changed, then expect a host of cities to follow Vallejo into bankruptcy.

The new contract cuts police staffing costs by 18% compared to the old contract, according to city manager Joseph M. Tanner. The deal will save the city’s $77 million general fund about $6 million in fiscal 2009 and 2010.

Vallejo has been paying workers less than their contracted salaries under a court-approved pendency plan since shortly after it filed for bankruptcy.

The revised police contract caps salaries at the level the city has paid under the bankruptcy through June 2010 and ties future pay raises to the mean of seven Bay Area cities. It also limits health care payments for current and former employees, eliminates minimum staffing requirements, and reduces leave payouts.

In return for their concessions, the police will get a contract extension through 2012 and receive $1 million in damages to be paid between 2012 and 2015.

Vallejo’s much smaller Confidential, Administrative, Management, and Professional Employees union this week agreed to a deal that included no bankruptcy damages, Levinson said. The two sides had not yet published the details of the new contract, which won’t go before the City Council for approval until next week.

Levinson said the city also wrote up a new proposal for the IBEW this week and continues to actively negotiate with its firefighters. He said the city has offered the firefighters the same deal the police recently accepted.

As it reaches agreements with labor groups, Vallejo removes obstacles in the bankruptcy court. Three city unions have appealed McManus’ ruling that the city was eligible for bankruptcy protection, and the Bankruptcy Appellate Panel of the Ninth Circuit Court of Appeals will hear the appeal Feb. 19.

More here.