Sunday, July 13, 2008

Bankruptcy & the Public Trust

As most people know by now, the Vallejo City Council unanimously approved the filing of a petition under Chapter 9 of the U.S. bankruptcy code. It took many years for Vallejo to get to this point, but ultimately there was a long-term abuse of the public trust. Some of it was unintentional. Some of it was unintentional but based on greed and/or self-interest. And some of it was definitely intentional.

As we go through the bankruptcy process, I'll talk more of what happened and how we got here. But right now, it's most important to acknowledge the basic root of our problem -- Vallejo had made contractual commitments that far outpaced our General Fund revenues. Our annual operating deficit is currently $16 million, and it will grow almost exponentially without serious changes to our financial structure.

One of my biggest frustrations after getting elected in 2005 was the realization that the City Council had no room to make tough financial decisions to save the city from what was obviously impending insolvency. Previous City management had made too many service cuts and temporary fixes that ultimately cost more than they saved. They may have solved the financial crisis facing them at the time, but in doing so they promised future raises and benefits that the City would never be able to afford. They bargained their way out of their crisis du jour, but they also gave away future Councils' control over the City checkbook.

When I came into office, approximately 70 percent of our General Fund was bound up in contractual agreements with our public safety unions. That left only 30 percent for all other services like road maintenance, tree trimming, community organizations, libraries, code enforcement, vehicle and equipment maintenance, transportation, etc. (Two years later, that 30 percent figure is now 20-25 percent. )

We needed an agreement to modify the public safety contracts and make our public safety salaries fair and affordable. I've worked with two city managers now who tried to reach new agreements with the public safety unions, to no avail. They never opened up their contracts for renegotiation. The City tried to negotiate a solution in good faith. But we didn't get the same in return, and in the end, there was no agreement offered that helped us solve our problem for the long-term. We were offered the same short-term fixes, wage and benefit deferrals and contract extensions that previous city management had grabbed onto like a lifeline. They were unacceptable to me and ultimately to a majority of the Council because they didn't help us avoid insolvency or even touch the root of our structural deficit -- which is still unsustainable salaries and benefit packages.

So with growing deficits, spiralling public safety costs, no reserve, a worsening economy and a miserable housing market, this current City Council had no choice but to unanimously approve the filing of a bankruptcy petition. That's where we are right now. (In one of my next blogs perhaps I'll talk about some of the items in the public safety contracts that don't appear on the surface to have a cost to the City, but which ultimately cost the taxpayers dearly in both money and trust.)

Please note that the bankruptcy hearings are open to the public. That's one of the benefits of bankruptcy -- finally, the sunshine is bright and the information cannot be hidden behind the secrecy of "negotiations" or "closed sessions."

The hearing on the City's qualification to be a debtor will be heard as follows (this schedule may change):

  • July 23 and 24, starting at 1 p.m.

  • July 25, beginning at 9 a.m. (half day)

  • August 5, starting at 9 a.m. (all day)

  • The Court also reserved all day of August 19, 21, and 22 for the conclusion of the hearing, if necessary. Otherwise these days will be used for the hearing on the City's Motion to Reject the Collective Bargaining Agreements.

The U.S. Courthouse in Sacramento is located at 501 I Street, on the corner of 5th and I Streets (across the street from the Amtrak station). Judge McManus' courtroom is on the 7th floor.

For more information, please go to the City's website.