Archive for March, 2010

Bankrupt Vallejo cuts firefighter pension costs

March 26, 2010

VALLEJO — Bankrupt Vallejo’s city council approved a firefighter contract this week some city officials said may start a new trend: smaller pensions for new hires and a bigger bite from paychecks to pay for pensions.

The firefighter union agreed to cut pensions for new hires to 2 percent of final pay for each year served at age 50, down from the current 3 percent at 50, a previous trend advanced by state legislation a decade ago that critics contend is “unsustainable.”

A new two-year contract with no pay raise, narrowly approved by a 4-to-3 vote of the city council, also increases the pension contribution from current firefighters to 13.4 percent of their pay, up from 9 percent.

The widely watched municipal bankruptcy filed in May 2008 produced a landmark ruling from U.S. Bankruptcy Judge Michael McManus in Sacramento, who overturned a Vallejo contract with an electrical workers union last September.

Public employee unions, concerned that bankruptcy might become a way for deficit-ridden cities to overturn labor contracts, backed unsuccessful legislation requiring cities to get approval from a state commission before declaring bankruptcy.

But so far, the bankruptcy mainly has produced a complex court battle that already may have cost the city $7 million in legal bills and a bitter split on a city council that unanimously voted 7-to-0 for bankruptcy two years ago.

Among the complications: city revenue has plunged during a deep economic recession, dropping 30 percent since the bankruptcy to a projected $54 million. And the city charter requires binding arbitration when labor talks fail, limiting the ability to impose new contract terms.

“There is no bankruptcy law that talks about negotiating new agreements,” Marc Levinson, the city’s bankruptcy, told the council Tuesday (March 23). “You default to applicable non-bankruptcy law, and that’s the city charter and binding arbitration.”

The city negotiated new contracts early last year with managers and the police union, which included a pay raise for the officers. The electrical workers union contract was overturned by McManus after mediation failed.

The electrical workers appealed the decision on their contract. Arguments were heard earlier this month by U.S. District Judge John Mendez in Sacramento, who is not expected to issue a ruling until May.

At the city council meeting this week, supporters said the new contract with firefighters is a step toward helping the city recover and avoids the risk that binding arbitration would produce less savings.

“I think that leaving it up to an arbitrator … for me, given the strides that occurred here, the ‘two at 50,’ that’s monumental,” said Councilwoman Erin Hannigan. “That isn’t something that’s happening in other communities just yet. But I think it will be from here on forward.”

As Mayor Osby Davis congratulated the firefighters, he made an apparent reference to labor negotiations that often make comparisons with benefits for other unions and public employees in other cities.

“I think you made some major ‘gives’ that probably won’t be liked by your fellow unions and other people,” Davis said. “But I think you did a Herculean job, at least to my viewpoint, in trying to help us come up with a solution.”

Among the savings in the firefighter contract are health costs, limited to 75 percent of Kaiser health plan rates. The total compensation for a firefighter/paramedic with 10 years of service is $178,000, down 23 percent from $230,000 in the old contract.

Opponents, pushing for more cost savings, said the firefighter contract seems to assume that revenue will plunge no farther, the police union will make cost-saving concessions, and voters will approve a sales tax increase this fall.

“The fact is consultants are running this city,” said Vice Mayor Stephanie Gomes. She said the four persons sitting at the table in front of the council as the contract was presented by negotiator Sandy Salerno were all consultants, not staff members.

“I agree with you in a sense, Vice Mayor Gomes, that consultants are running the city,” said Davis. “But we have to make the final decisions. We have to tell them ‘no’ or ‘yes.’”

Gomes and the other opponents, Councilwomen Marti Brown and Joanne Schivley, said the city has been trying to erase its deficit by cutting services rather than using bankruptcy to restructure government.

“We have squandered the opportunity and a lot of the money that bankruptcy provided and used,” said Schivley.

A report to the city council last December said police staff dropped from a high of 155 to 104, nine fire companies were cut to six, and staff paid by the general fund was down 31 percent to 340.

“We also need major pension reform,” Said Schivley. “Every time you pick up the paper you are reading that anymore. Municipalities, counties, the state acknowledge that these pension benefits are not sustainable.”

Vallejo’s current long-term obligation to the California Public Employees Retirement System is $195 million, Rob Stout, city finance director, told the council. He said $100 million of the obligation is from investment losses in the stock market crash.

To avoid a rate shock, CalPERS has adopted a three-year phase in of higher pension contributions. Stout said the Vallejo plan is to make an early payment of $4 million more than CalPERS requires.

He said the early payment avoids making other budget cuts “year after year” to cover the higher pension cost. He said delaying the payment would be “borrowing” with about $350,000 in interest payments.

A chart in a tentative city workout plan last December showed a payment of 18.7 percent of payroll next fiscal year under the CalPERS plan. The city proposal is 32.6 percent of payroll.

Vallejo had been paying nearly all of the cost of health care insurance for retirees and their families. The city plan last December was to make cuts reducing the long-term retiree health care debt from $135 million to $34 million.

Some retiree health care cuts have been negotiated with the unions, such as a $300 a month cap on insurance payments for some firefighter retirees. The city imposed other retiree health care cuts earlier this year without union agreement.

A group representing at least 464 retirees and 53 surviving spouses filed a suit this month challenging all of the retiree health care cuts. The suit said some retirees paying little or nothing now must pay $873 to $1,219 a month for health coverage.

“Many will have to spend large portions of their monthly income on medical premiums and others will have to choose between medical care and other necessities,” said the suit.

Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at Posted 26 Mar 10

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