VALLEJO, Calif. -- Mayor Osby Davis, who has lived in this
waterfront city across San Pablo Bay from San Francisco for 60
of his 62 years, says: "If you have a can that's leaking two
ounces a minute and you put an ounce a minute in it, it's going
to get empty." He is describing his city's coffers.
Joseph Tanner, who became city manager after this municipality
of 120,000 souls was mismanaged to the brink of bankruptcy,
stands at a whiteboard to explain the simple arithmetic that has
pushed Vallejo over the brink. Its crisis -- a cash flow
insufficient to cover contractual obligations -- came about
because (to use fiscal 2007 figures) each of the 100
firefighters paid $230 a month in union dues and each of the 140
police officers paid $254 a month, giving their unions enormous
sums to purchase a compliant city council.
So a police captain receives $306,000 a year in pay and
benefits, a lieutenant receives $247,644, and the average for
firefighters -- 21 of them earn more than $200,000, including
overtime -- is $171,000. Police and firefighters can store up
unused vacation and leave time over their careers and walk away,
as one of the more than 20 who recently retired did, with a
$370,000 check. Last year, 292 city employees made more than
$100,000. And after just five years, all police and firefighters
are guaranteed lifetime health benefits.
Even the City Council has at last faced facts and voted 7 to 0
for bankruptcy. "The day after they voted," Davis says, "I
didn't go out of the house -- I was that embarrassed."
In other states, municipalities can pay for improvident labor
contracts by increasing property taxes. But Vallejo's promises
were made in the context of Proposition 13, which 30 years ago
wisely restricted California politicians' reach for property
taxes. In 1996, the Navy base in Vallejo closed, which probably
pleased some local liberals who share the anti-military
mentality of San Francisco, to which some Vallejo residents
commute by ferry. Liberals who, Tanner says dryly, "want Vallejo
to look a certain way," were pleased when Wal-Mart moved to an
adjacent town, which now reaps the sales tax revenue.
Vallejo is an ominous portent for other cities, and some states,
few of which are accumulating financial resources sufficient to
fulfill pension promises they have made to employees. Are you
weary of the crisis du jour -- subprime mortgages and all that?
Get a head start on worrying about the next debacle by reading
Roger Lowenstein's new book, "While America Aged: How Pension
Debts Ruined General Motors, Stopped the NYC Subways, Bankrupted
San Diego, and Loom as the Next Financial Crisis."
"Next"? This crisis has arrived in Jefferson County, Ala., which
includes Birmingham. Like Orange County, Calif., a few years
ago, Jefferson County made risky investments in a desperate
attempt to achieve asset growth commensurate with the cost of an
infrastructure project. When San Diego was earning the sobriquet
"Enron by the sea," firefighters could retire at 50 with 90
percent of their pensions -- almost full pay for not working
during half of their expected adult lives.
Credit Suisse estimates that state and local governments have a
cumulative $1.5 trillion shortfall in commitments for retiree
health care. But it is the pension crisis that most dramatically
illustrates Lowenstein's thesis about the slow accretion of
power by the unions. Pensions "are a perfect vehicle for
procrastination; in the financial world, they are the most
long-enduring promises that exist." Human nature -- the
propensity to delay the unpleasant -- rears its ugly head: When
pension benefits come due, the people who promised them, thereby
buying labor peace and winning elections, are long gone.
Vallejo's unions contend that the city is solvent enough to meet
its obligations. But last Friday a court disagreed, holding that
the city is eligible for bankruptcy protection. A lawyer for
Vallejo says the unions will have to negotiate a "plan of
adjustment." Other cities are watching, perhaps including the
one across the bay.
San Francisco recently reported that 184 of its employees made
at least $30,000 apiece in overtime in the first half of this
year. A nurse at the county jail made $128,000 in overtime,
putting him on track to top his total 2007 compensation of about
$350,000. Nice work if you can get it, and you can get it in
Chief judge of the U.S. Bankruptcy Court for the Eastern
District of California Michael McManus ruled on Sep. 5 that
is eligible for municipal bankruptcy protection, setting the
stage for a major battle over possible dissolution of city
employee union contracts.