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Wednesday, September 03, 2008

Lessons to Be Learned From Vallejo's Bankruptcy

Some have openly wondered why the sudden focus on the salaries of public employees in both Davis as well as in the county. In truth, it is a combination of factors that stem from the alarm of what happened in Vallejo to the burning question: can it happen here. Over the course of the summer, we have looked at this question from a variety of different angles. Perhaps most concerning was the seeming lack of concern from two of the victors in last spring's Davis City Council election about the looming and impending problem of Davis' fiscal stability.

These candidates argue that Davis has a balanced budget and it has a 15% reserve. At the same time, we see signs that all is not quite as well. The reports about the city's unmet needs is alarming. Basic repairs are being left undone which means that when they finally are tackled, their costs will likely have gone up. A simple view of the budget picture is that employees salaries have gone up far faster than tax revenues. The amount city has spent on pensions have increased five-fold over the course of just this decade. The city council at every budget workshop has looked toward the creation of new taxes. And finally, the most extreme cost to residents may be a water rate hike that was so explosive the Mayor would not even let a councilmember complete her questioning of a consultant.

With all that as context, we now look at Vallejo briefly as a guideline. Vallejo is not where we are right now, a clear view of that will emerge in a minute. The question is whether Vallejo is where we are going to end up. As we look at this analysis, I think the picture will become very clear as to why we have spent so much time looking at the issue of Davis' fiscal situation this summer.

The 100K of Vallejo

The Woodland Journal has provided us with these figures from a public records request they made from the city of Vallejo.

As you look at these salaries, remember that Vallejo is not even twice the size of Davis. It has a population of 116,000. The median income of Vallejo is $47,000 whereas Davis' is $65,000. The median housing price is also considerably less than Davis at $344,000. That is the context behind these numbers that show rather than 61 city employees in Davis making over $100,000 per year, a stunning, 292 city employees in Vallejo making over $100,000 per year.
Of this list, public safety and in Vallejo's case both police and fire, absolutely dominate the list. Of the 292 city employees making over $100,000 per year, 246 are in public safety--148 police and 98 fire.

As the pie chart shows, over half of the employees are in police and another 35% are in fire.

In addition to overtime, there were also payouts for holiday pay that are not shown on the chart above. It is not clear what holiday pay entails but in some cases it is a huge amount of money. The top wage earner received $232,000 for holiday pay, the second highest wage earner received nearly $200,000 for it.

Lessons to be learned

Some will take from this demonstration some solace that Davis is not in the condition that Vallejo was before filing for bankruptcy. That is 100% correct. However, the concern is that Davis like many cities in California is heading in that direction. The tale of Vallejo is a cautionary one for the rest of California cities to avoid their pitfalls.

Peter Scheer is the executive director of the California First Amendment Coalition. He was a guest on Vanguard Radio back in June.

In May, he wrote a column on how Vallejo's bankruptcy might have been avoided that appeared in the Huffington Post.

Mr. Scheer writes:
"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."
He continues:
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.
Finally a cautionary tale for public employee unions across California:
"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."
I agree with Peter Scheer 100%. There is familiarity in the Vallejo situation to our current situation. We are not where Vallejo is. Hopefully we can learn from these lessons. However, there is zero doubt in my mind that we are heading there. All of the trends are pointing to this.

Finally though this is a story about transparency. People have criticized the Vanguard for perhaps focusing too much attention on the firefighters of Davis. Honestly, I have nothing against the firefighters. On a personal level, I like their union chief. I enjoyed myself last summer when I did a ride-along with the department. I learned a lot and they were extremely accommodating to me. This is not personal. This is about public policy and from that standpoint, the city must step in because if Davis goes bankrupt, the firefighters stand to lose as much as anyone else.

People have also criticized the Vanguard for reporting on government practices when there was no clear problem. What I think they fail to recognize is that we need to know what is going on with our government regardless of whether they are behaving appropriately or misusing public funds. Both are important to report on, to know about, and to follow.

Peter Scheer hits the nail on the head in his column. We need transparency in government and for the public to be aware of what the contract are and what the consequences of these contract will be not only this year but down the line. And we have the same problem here that existed in Vallejo. A particular public employee union has tremendous leverage over the current council because of the work they did on behalf of two councilmembers this last cycle to see that they were reelected. The amount of money put in by that union was far more than any other single interest.

As Mr. Scheer points out, when the bankruptcy court comes in, the union will not have the kind of leverage over the judge that they had over the city and the judge has the power to void contracts. I would hate to see Davis come down to that and we can avoid with fiscal responsibility in the next four years. This is crucial time, because the contracts are coming due and negotiations will begin soon. The public needs to watch this situation very closely to ensure that their interests and not just the interests of the public employees unions are represented in the process.

---Doug Paul Davis reporting