Vallejo test case for unloading extravagant public employee contracts

According to SFGate, By declaring bankruptcy, Vallejo has thrust itself into the national spotlight as a test case for thousands of floundering cities desperate to unload their extravagant public employee contracts.

Because so few public entities have declared bankruptcy, no one’s sure how labor contracts will be affected. Vallejo’s public safety unions have vowed to fight the proceedings, arguing that the city has plenty of money stashed in hidden accounts and is using bankruptcy to avoid paying police and fire fighters what they’re owed.

The unions commissioned a report by Harvey Rose auditing firm in San Francisco that concluded the city has other ways to balance its budget besides slashing salaries, staffing and benefits, union leaders said. The report has not been made public because it’s part of ongoing labor negotiations.
Meanwhile, the unions would like an independent state audit of Vallejo’s books.

“We don’t believe they’re insolvent,” said Vallejo police Detective Mat Mustard, vice president of the police union. “But by declaring bankruptcy, they’ve taken a financial crisis and turned it into a catastrophe. It’s like using an elephant gun to shoot an ant.”

It’s very possible a judge will void Vallejo’s labor contracts, George said. When airlines began filing bankruptcy several years ago, judges allowed them to renegotiate their union contracts, making bankruptcy an attractive option across the airline industry, he said.

Even so, bankruptcy is an extreme measure for a public entity, he said. Thousands of cities across the United States are in the same boat as Vallejo, but nearly all of them find other ways to avoid Chapter 9. They cut and outsource services, share services with neighboring cities, sell property and raise taxes and fees.

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