Vallejo's Bankruptcy Might Have Been Prevented
The city of Vallejo, California has taken the extraordinary step of filing for federal bankruptcy protection. While the financial distress of this San Francisco suburb (population 117,000) is especially acute, its fiscal problems are fundamentally the same as those facing many California cities and counties--and, indeed, the state itself.
To the familiar litany of causes--falling sales tax revenue, the home mortgage crisis leading to collapsing home prices and lower real estate taxes--there needs to be added one more: Too much government secrecy.
Vallejo is broke, and other cities and counties may be close behind, because their personnel costs--salary and benefits for current employees and retirees--are higher than they can afford. While decisions at the state level are partly to blame, ultimate responsibility for the mismatch of revenue and expenses rests with local elected officials who, meeting in secret, have managed to avoid public discussion of the true cost and fiscal impact of the pay deals that they have approved.
If no one is watching, it's easy for public officials to give generous pay and benefit increases without having a clue how to pay for them. That's not so easy to do in a public session, where voters demand to know how much taxes will have to be raised, and how much other expenses cut, in order to make good on the promised increases in compensation. Such resistance is called political accountability, and it obviously depends on public access to the meetings in which elected representatives make their decisions.
Although in theory legislative bodies in California must operate in the "sunshine," the Brown Act, the state's open-meetings law, carves out a huge exception for negotiations with public employee unions. The combined effect of this exception, and separate provisions of the labor code, is to close the door, pull down the shades and turn off the lights on virtually all decisions relating to employee compensation and other terms of union contracts ("collective bargaining agreements").
Negotiating positions are determined in secret, negotiations themselves are conducted in secret, and negotiated contracts are ratified in secret. By the time the public gets to see the compensation provisions of a new union contract, it is already a done deal--indeed, any effort to change the terms likely would be a breach of the contract.
This cozy arrangement is very much in the unions' interest, since transparency would risk public opposition, and very much in politicians' interest, since they get to be generous with public funds without having to be responsible for them. Only one party is screwed: the public.
Vallejo's resort to bankruptcy court is a catastrophe, not least because it reflects the total collapse of the city's political process and the surrender of its sovereignty to an unelected federal judge. If filing for bankruptcy doesn't humiliate city officials, it's hard to imagine what would.
For all its problems, however, bankruptcy proceedings at least will be conducted in public, all legal and factual documents in the case will be open to the public, and the people of Vallejo will have their first real opportunity to understand the true costs of city employees' pay and benefits, as well as the options for bringing costs in line with revenues.
For unions, bankruptcy court is a potentially costly defeat. The judge has the power not only to protect the city from its creditors, but also to void the union contract and, in that way, force city employees to accept a pay package in keeping with the city's capacity to pay.
The union has none of the leverage with the judge that it had with Vallejo's elected officials. It can't lobby the judge or give him campaign contributions, obviously. Having overplayed its hand, the union now finds itself in the uncomfortable position of having to justify, in a public forum, its claims to the city's limited, and declining, resources.
Vallejo is the first California municipality to declare bankruptcy in the current economic downturn; others are likely to follow, unfortunately. These debacles are sure to have repercussions in Sacramento, as legislators consider measures to prevent cities from reaching the financial abyss into which Vallejo has fallen.
Of all the steps they could take, the most important would be to end the secrecy surrounding public employee contract negotiations.
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Peter Scheer, a lawyer and journalist, is executive director of the California First Amendment Coalition.
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A suggestion for a different way to fund public employee pensions:
instead of the government entity gauranteeing a specific monthly dollar amount in retirement, to be paid out of tax income, have the government entity pay a negotiated amount into a pension fund that cannot be tapped by any government bureaucracy. The pay-out to retirees might fluctuate with ups and downs of the market, but even if the governmental body declared bankruptcy, the retirement funds would still be safe and protected, from all but inflation and market vagaries.
My own pension resembles what I have described, and it works pretty well. The CEO of the company I worked for cannot steal it for his golden parachute, and the company cannot use the pension funds to cover operating expenses.
If Vallejo had been in New Jersey or New York instead of California, it would have simply raised its property tax rates and squeezed its middle class harder. No wonder so many retirees in NY and NJ end up moving to Florida. They can no longer afford the high property taxes. Fortunately, California property owners have greater protection from rapidly growing local government budgets. Property taxes can only increase 2% a year on a property unless voters in a district approve a higher levy via a parcel tax (flat rate) or to fund a new bond issue.
Do you have any idea how large a 401K plan you would need to fund a lifetime annuity of $70,000 per year at age 50 (assuming 30 years of service)? I suspect well over a million dollars. $70,000 annual pensions are no longer unusual for retiring California police, firefighters and prison guards.
California's legislature made a big mistake in 1999 giving government employers in the state the ability to expand pension benefits for workers, especially public safety workers. Perhaps the bankruptcy courts will bring some sanity to public employee labor contracts.
Florida used to be a refuge but no more.
Gov. Crist who is on the short list of republican VP candidates passed a law in February which has Florida homeowners transfering their frozen property tax rates to new homes whereas newcomers to Florida will pay the full tax on homes.
Since Florida property values increased 300 per cent (they are going down some now) that means that a newcomer to Florida and a state resident each looking to buy similar houses worth, say, $400,000 would pay widely different taxes. The newcomer would pay about $6000 while the state resident would pay about $2000. In other words, if you move to Florida today, you may be paying three times the tax of your neighbor.
Also, in spite of the rocketing property values in Florida in the last 5 years, the municipalities don't really have any surpluses because they have been giving everything away in employee salaries and benefits.
In California I understand they have been funding pensions with bonds which is insane.
Correction:
Actually the tax on a $400,000 house would vary but it is more than $6000. In my community you would pay about $10,000
What a low, Reagan-esque trick to fault decent compensation for public servants. The insane privatization frenzy he kicked off has been the mistake, as common sense should have warned us. Obviously, whenever you place a profit-collecting entity between provider and recipient of any service, its cost will rise.
The trouble communities are in now is essentially the work of Wall Street banks deregulated under Clinton, who continued Republican economic policies. The credit crisis they created in the process of enriching themselves on toxic security sales is felt now in both the housing and bond markets, upon which local governments rely.
All this whining about public employee unions getting 'generous' benefits for the most part is all bs
they are equivalent to what's in the private sector, and in some cases DO NOT pay into SSN-they have their OWN system. Oh yeah the media goes on and on about some high level exec or director of such and such government entity but that's for they few that are at that level, most of the grunt work folks like say your vital police, firefighters, first responders in disasters not to mention the other dilberts that monitor control and negotiate all the contracts to MAKE SURE taxpayer money is not wasted get compensation and benefits in line with the private sector. That is just pandering that is used by the antitax at any cost crowd (read libertarian neocon etc.). The sad thing about all of this is the taxpayer/voter for the most part DOESN'T GET THE CONNECTION BETWEEN THE TAXES THEY PAY AND THE GOVERMENT SERVICES THEY RECEIVE, elected and public officials don't seem to stress that in the media and they should (media doesn't or doesn't want to take this on-typical of corporate media). BTW what happened in Glenn County, I've heard it had gone 'bankrupt; several years ago and let's not forget Orange County and New York City. And Vallejo was doing all the right things.
That cities rely on property value alone to determine property tax is fundamentally unstable. They get money as the economy ebbs and flows; it also encourages something of a conflict of interest when property values are determined.
A better way would be to say that the city will levy, suppose, $10 million each year - regardless of the actual value. The allocation per property would be based on it's proportion of the property value in the city. Therefore, the property owner can reliably predict the tax burden they face. Retired people don't get hit with costs rising unpredictably faster then their income.
When property taxes are based on value, and the value goes up due to inflation, causing the taxes to go up, what extra service does the homeowner get? Likely, none. It also keeps the city from feeling too rich in good times, and keeps them afloat in bad times.
Sometimes it appears to me that public employee unions (one of which I am a member of) are often ignorant that their members wages and benefits and job security are joined at the hip to the fate of equally compensated work in the private sector. Living wage and benefits of the private sector determine a substantial portion of the tax revenues generated to pay for all governmental services.
When living wage private sector jobs vanish into the pit of NAFTA, inevitably so public employee jobs are pulled down that hole too.
Any public employee union that continues to support the wife of Mr. NAFTA /CAFTA just doesn't get it.
The majority of working Americans do.
__two hats
As a mid range employee working at a municipal government in Ft lauderdale I see a certain amount of greed at the higher eschelon of government. Top mamagement are little more than right wing ignoramous who come in with top salaries and try to justify outsourcing as a means of cost savings. Invariable the cost savings are turned inside out as numbers are manipulated to make the attempts more costly. Also, a fair amount of favoritism and nepotism from top management is played out that in itself contribute to a suspicious workforce.
We all know about police and fire unions that they don't play when it comes time to negotiate. Their Unions are strong and their membership will push for everything they can get. After-all, they are essential services. The rank and file gets what left or given to them from a disdainful top management and the general employee union all too accepting just to get something.
Overall, you should expect to see services and quality of workforce fall short in coming years as municipalities and county pull back in offering defined pensions and cut backs on health care. Looking back, I wish I had become a plumber in my earlier years.
As a private sector employee for my entire career, I have felt the very damaging effects of Mr. NAFTA/CAFTA and therefore do not support a clinton. I fully expect the GOP to obfuscate the entire topic of government employees when the extent of damage to municipalities really shows itself around the country (coming soon to a theater near all of us) saying such nonsense as 'it doesn't work' or 'privatization is better' which is a total lie through and through. In the private sector, profit MARGINS are typically 40 to 70% for government contracts.
The federal government needs real leadership in economic policy nationally and internatio
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