In 2008, Vallejo, Calif., was nearly broke. Faced with falling tax revenues, rising pension costs, and unmovable public-employee unions, the city was unable to pay its bills and declared bankruptcy. Now, as it prepares to emerge from Chapter 9, officials in Los Angeles, San Diego and other cities across the state are looking to see if Vallejo has blazed a trail for them to get out from under their own crushing pension costs. What they're finding is that even bankruptcy may not be enough to break the grip unions have on the public purse.Vallejo will eventually be back in bankruptcy court. Hopefully they will get it right next time.
A report issued by the Cato Institute last September noted that 74% of the city's general budget was eaten up by police and firefighter salaries and overtime along with pension obligations.
The study also found that lavish pay and benefit packages were a root cause of the city's problems. In Vallejo compensation packages for police captains top $300,000 a year and average $171,000 a year for firefighters. Regular public employees in the city can retire at age 55 with 81% of their final year's pay guaranteed. Police and fire officials can retire at age 50 with a pension that pays them 90% of their final year's salary every year for life and the lives of their spouses.
To permanently bring its spending in line with its tax base, however, at some point Vallejo will have to do something about its pensions. U.S. bankruptcy judge Michael McManus, as the National law Journal reported last March, "held the city of Vallejo, Calif., has the authority to void its existing union contracts in its effort to reorganize."
But when it came to voiding those contracts on pensions�a major driver of public expenses�the city blinked. The "workout plan" the city approved in December calls for cuts in services, staff and even some benefits, such as health benefits for retirees. However, it does not touch public-employee pensions. Indeed, it increases the pension contributions the city pays.
This week, the city did approve a new firefighter contract that trims pension benefits for new hires and requires existing firefighters to pay more into their pensions. But that contract doesn't touch existing pensions. Nor does it affect police officers or other city workers. It also leaves the city with a $1.2 million shortfall. "The majority [of council members] did not have the political will to touch the pink elephant in the room�public safety influence, benefits and pay," Vice Mayor Stephanie Gomes told me.
In the meantime, if you live in Vallejo, I advise voting with your feet. Vallejo's mayor and city council are clearly inept, or alternatively bought and paid by the unions.
Steven Greenhut's Plunder!
I encourage you to read Plunder! How Public Employee Unions are Raiding Treasuries, Controlling Our Lives and Bankrupting the Nation by Steven Greenhut.
Plunder! is a fantastic book. I finished it weeks ago, but have not had time yet to do a review. I will. In the meantime I assure you it is well worth a read. It will open your eyes as to what is happening and why in regard to public unions.
Plunder! is now on my recommended reading list on the left.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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