Claremont Insider: Cities at the Fiscal Brink

Tuesday, June 2, 2009

Cities at the Fiscal Brink

A year ago, facing falling revenues and saddled with overly generous employee pension obligations, the city of Vallejo declared bankruptcy. As we suggested at the time, other California towns are being dragged down by the same set of problems.

Vallejo (and potentially other local governments) sought bankruptcy to restructure its employee contracts, which included pension obligations the city can no longer afford. The state Assembly, however, responded to the possible coming wave of municipal bankruptcies by proposing legislation pushed by public employee unions that would require local governments to obtain the state's approval for bankruptcy filings.

The municipal bankruptcy bill (AB 155) is sponsored by Tony Mendoza (D-Artesia). Local governments and their representatives have lined up against the bill, according to a Sacramento Bee article published today.

The Bee article observes that the recession has pushed more local governments to the brink of bankruptcy, and some of those same agencies have apparently been using the fiscal crises as bargaining chips with their employees' labor representatives. The article says:

The fiscal crisis "raised alarm bells," said Carroll Wills, spokesman for the California Professional Firefighters.

"Municipalities up and down the state have either spoken publicly about bankruptcy or have contacted the bankruptcy attorney representative for Vallejo," Wills said.

But the issue goes well beyond Vallejo, he said.

"There's a central issue of the sanctity of the negotiated (labor) contract at stake," he said.

"Some of our local affiliates have been given this back-channel nudge (from management): 'If you guys don't respond (and make contract concessions), we're going to pull a Vallejo,' " Wills said.