Look out, Claremont. Your city staff just may cost you a trip to the poorhouse. A reader wrote in to tell us that the city of Vallejo voted earlier this month to file for bankruptcy.
According to an Associated Press article about the bankruptcy:
VALLEJO — With hundreds of concerned residents looking on, the Vallejo City Council voted unanimously late Tuesday to file for bankruptcy, making the city the first of its size to seek protection due to unaffordable labor contracts.
The dramatic vote came despite a last-minute appeal by state Sen. Pat Wiggins, D-Santa Rosa, and an aide for Assemblywoman Noreen Evans for the city to avoid bankruptcy....
....Vallejo has been slammed by increasing costs of its public safety contracts, the housing crisis, lower property values and state raids on local coffers.
The city faces a $16 million deficit in the 2008-09 fiscal year which starts July 1. Tuesday night's dramatic vote came after months of fruitless talks between city and labor representatives.
After those talks, which continued through the weekend and failed to produce a long-range fiscal plan, Vallejo's top administrators recommended bankruptcy as the only option remaining.
Chapter 9 bankruptcy will allow the city to gain temporary protection from creditors and enable the city to continue to offer citizens necessary services.
Another AP story explained the reasons why employee costs are dragging down city budgets and talked about the downside to a municipal bankruptcy:
Like Vallejo, many U.S. cities are saddled with labor contracts that offer salaries, overtime pay, pensions and health benefits they say they can't afford. Those expenses are expected to balloon as health care costs soar and employees retire earlier and live longer.
Vallejo officials hope the bankruptcy judge will allow the city to rewrite its labor contracts and bring compensation down. If they're successful, other cities may follow their lead, experts say.
"The solution that will come out of Vallejo may very well be a model for other cities facing similarfiscal challenges," said Marcia Fritz, vice president of the California Foundation for Fiscal Responsibility. "If Vallejo turns out better after declaring bankruptcy ... that will be an avenue (other cities) look at to break contracts."
But bankruptcy is not without risks. It will cost the city millions of dollars in legal fees and damage its credit rating. As a result, borrowing money to build roads, schools and other projects will become much harder - and more expensive.
Claremont has some experience with ballooning employee costs. Before he left for Indio, former Claremont City Manager Glenn Southard got the Claremont City Council to raise city employee pension benefit to 2.5% at 55, meaning that once employees reach 50 years of age, they are qualify for a pension equal to 2.5% of their annual salary at retirement for every year of employment. So an employee who started working for Claremont at, say, 25, and who retired at 55, would qualify for a pension benefit of 75% of their salary - 30 years of service, times 2.5%.
Claremont police officers qualify for an even higher pension. CPD gives out 3% at 50.
To those of you working in private industry, do you receive such generous pension benefits? If you are a worker in one of the 87% of private businesses not offering a defined benefit pension, you're pretty much on your own to fund your own retirement through a 401(k) plan or an IRA. But public employees are in a different class from you.
Prior to the current pension benefit going into effect in July, 2004, Claremont's non-public safety pension benefit was 2% at 55. What Southard didn't tell you, what he didn't care about, was that the .5 % increase was retroactive back to each employee's date of hire. Consequently, Claremont's non-public safety pension account with the California Public Employee Retirement System (CalPERS) became instantly underfunded by as much as $10 million - a fact that Councilmember Peter Yao tried without much success to get Southard's staff to face.
Those of you who recall the meeting where Claremont's City Council voted on the pension increase may remember the unseemly spectacle of senior city employees lined up in the front row and cheering when the council approved the pension.
This all raises the a second problem - that of the blurring of the line between employee and friend. While it's great that the elected and appointed people who run the city love their staff, it's terribly irresponsible for them to abandon their duties to safeguard the public coffers by allowing themselves to become too close to their employees.
Claremont Human Services Deputy Director Mercedes Santoro, for instance, is no doubt a very nice person. She and her family live in Claremont, and they are involved in the community. However, is she really worth $130,000 in salary and benefits (as of the end of 2006)? Is anybody? And she is relatively young. What will her pension be when she retires?
No wonder cities - not just Claremont - seek to hide their employee compensation and are willing to take any step, no matter how questionable to cut off access to that public information. But just look to Vallejo or San Diego to see what happens when elected officials ignore their financial responsibilities.
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