A little-known retirement benefit, unused sick leave, has become an issue in the City of Vallejo bankruptcy, reportedly capable of yielding lump-sum payments worth up to two years of a firefighter’s annual salary.
In Vallejo, that’s a lot of money.
The suburban waterfront city on San Francisco Bay contended in a court filing last year that its average firefighter has an annual salary of $130,112, not counting any overtime.
The firefighters may be the last union standing as Vallejo, in a widely watched test case, asks a federal bankruptcy court to overturn contracts agreed to in collective bargaining with public employee unions.
The city worked out a new contract with the police union last month, removing them from the bankruptcy suit. The city has a tentative agreement with a small managers union and there is some optimism about talks with electrical workers.
But there has been little progress with the International Association of Firefighters, Local 1186, who broke off talks with the city at one point last year before recently returning to the table.
“It’s clear to the city that despite our efforts, and the union’s efforts, there will be no prompt resolution,” Marc Levinson, an attorney for the city said at a hearing this week. “The parties are still not close.”
Why could the city reach an agreement with police but not the firefighters?
Levinson said after the hearing there are financial issues, but also some “baggage” on staffing and other things that seem to stir the emotions of the firefighters. He did not elaborate.
U.S. Bankruptcy Court Judge Michael McManus began a hearing in Sacramento Tuesday on overturning the contracts. The hearing is scheduled to resume today (Feb. 5), possibly continuing next Tuesday.
If the judge rules in favor of the city, the next step may be new contracts done through binding arbitration. But the unions have an appeal pending of McManus’s ruling in September that the city is eligible for bankruptcy.
An attorney for the unions, Kelly Woodruff, said at the hearing Tuesday that the firefighters have made a money-saving offer to the city, which seems to be taking a harder line with the firefighters than it did with police.
“The city has backtracked and regressed enormously in the last exchange of offers,” she said.
Woodruff said the city is trying to deprive the firefighters of, among other things, sick leave worth “six figures” in some cases and as much as “two years of salary” in other cases.
Vallejo firefighters can take cash for up to half of the regular pay due for unused sick time when they retire, resign or die. And there is no cap on the amount of sick leave that can be accumulated at the rate of 288 hours a year.
A consultant hired by the city, Charles Sakai, said in a court filing that a firefighter working 20 years could accumulate up to 5,760 hours of sick leave worth nearly three years of service.
On separating from the city, said Sakai, the 20-year firefighter could take half of the sick leave amount in cash and use the other half to boost pension credits to the equivalent of 21 years and six months.
“The failure to cap the amount of sick pay obligates the city to make significant lump-sum payments to employees upon separation of service while increasing the city’s payment towards maintaining its pension system,” he said in the filing.
Sakai said that firefighters and other city employees also are paid for unused vacation time when they leave their jobs. He said after 20 years a firefighter could have a maximum of 1,248 hours of vacation time, worth half of the annual salary.
One of the “findings of fact” in Judge McManus’s ruling last September was that the city was hit with a big bill when several (no number given) public safety employees retired a year ago.
“In February 2008, several police officers and firefighters unexpectedly retired, obligating the city to pay unbudgeted retiree pay-outs of approximately $3.4 million,” the judge wrote.
Attorneys representing better-known retirement benefits, pensions and health care, also spoke at the hearing. The city attorney, Levinson, told them that retiree benefits are not a target at this time.
“We don’t agree that makes this a non-issue,” Steven Felderstein, a CalPERS attorney told the court. “We think that if the court authorizes rejection (of the labor contracts) the order should be clear about what the court is deciding and not deciding.”
The California Public Employees Retirement System is listed as the city’s biggest single unsecured creditor, owed $84 million for pension obligations that must be paid in the future.
CalPERS worries that if the city’s labor contracts are overturned, the pension fund’s separate contracts with the city for pension and retiree health benefits might be “implicitly” affected.
Levinson said retiree benefits are not part of the current motion before the court. He said that if the city decides to seek a change in retiree benefits, it will contact the retirees committee and try to negotiate an agreement.
Dale Ginter, a retirees committee attorney, argued that retiree benefits could be affected if the labor contracts on which they are based are overturned. He said overturning the contracts is the city’s “first step” in a strategy to change retiree benefits.
Judge McManus seemed skeptical: “I don’t understand how granting or not granting this motion preordains the result.”
Vallejo is running up a big legal bill as it pays for attorneys representing the city, the retirees committee and two banks listed as creditors, Union and Wells Fargo. The city has spent $2 million and requested another $500,000.
“The costs to file and defend the city’s bankruptcy petition have far exceeded initial estimates,” Susan Mayer, the Vallejo assistant finance director said in a court filing last month.
Mayer said the bankruptcy eligibility hearing last fall took two months, including eight days in court. She said the unions requested more than 40,000 pages of documents for their court battle.
Two small cities up river from Vallejo in the Sacramento-San Joaquin Delta, Isleton and Rio Vista, have talked about declaring bankruptcy. If the court overturns the labor contracts, other struggling local governments may also consider bankruptcy.
A bill introduced in the Legislature last week, AB 155 by Assemblyman Tony Mendoza, D-Norwalk, and a dozen co-authors, would make it more difficult for local government agencies to declare bankruptcy.
They would need the approval of a new Local Government Bankruptcy Committee whose members would be the state controller, the state treasurer and the state director of finance.
Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at https://calpensions.com/ Posted 5 Feb 09