More Muni Bankruptcies Ahead?

In some closely watched news, the city of Vallejo, California, has had a judge set precedent in permitting it to void union contracts under the current city bankruptcy. This could set the stage for a number of other cities to do the same thing, as a major worry had been whether municipal bankruptcy would allow such contracts — which represent the bulk of costs — to be voided and reset.

In a First, Bankruptcy Judge Rules Calif. City Can Void Union Contracts Pamela A. MacLean
The National Law Journal
March 17, 2009

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.

U.S. Bankruptcy Judge Michael McManus held March 13 that when Congress enacted 11 U.S.C. sec. 1113 to limit companies from outright rejection of union contracts it limited it to Chapter 11 bankruptcies. By failing to extend the limits to Chapter 9, which covers municipal bankruptcy, McManus said cities have broader latitude to break existing union pacts, In re City of Vallejo, 08-26813-A-9 (E. Dist. Calif.)

More here.