THE BLOG
05/09/2008 03:01 pm ET Updated May 25, 2011

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.