A Glimpse of the Future

Vallejo blames bankruptcy on contracts with unions

"Now the city of Vallejo, hit by the slumping housing market and the economic slowdown, says it is in deep financial trouble. It's blaming contracts with public employee unions, much like the city of San Diego.

But unlike San Diego, the Vallejo City Council voted unanimously to declare bankruptcy and ask a federal court to break its union contracts – a move that experts say could set a precedent. "

Of course the Federal Government won't go bankrupt. It will simply print more money and make everyone's pension worthless as inflation eats away at the value of our money in pension funds investments and savings.

"An attorney in Santa Monica who worked on a previous government bankruptcy that also drew national media attention, that of Orange County, said cities and unions will watch the Vallejo case."

“Probably many cities and municipal entities have problems similar to Vallejo, if not to the same magnitude, at least of the same kind,” said Paul Glassman, who represented cities in the 1994 Orange County case resulting from faulty investments."

Many cities and municipal entities definitely have problems similar to Vallejo. As far as I know all of the large cities do.

The politicians have bought the voters of the municipal unions with inflated salaries and promises of unrealistic pension and benefit packages. The managers of these benefits have moved the day when payment is due into the future borrowing against the future and incurring deficits that increase every year until it becomes obvious that choices will have to be made.

Will pensions be paid or will the streets be repaired?

Interminable hand wringing and finger pointing ensue.

Unions blame the cities and the politicians blame the unions.

"Unfortunately, the mayor said, the bankruptcy is necessary because there is “absolutely no other way to pay our bills” in the new fiscal year without getting relief from the union contracts.

Is Vallejo, as some observers are saying, a test case for other local governments that might opt for bankruptcy to get relief from union contracts, including costly pensions and retiree health benefits?"

No, Vallejo isn't a test case, its the future!

"Davis [the mayor] said Vallejo's situation should be cautionary in another way. He said a citizens committee reported in 1993 that if employee-benefits trends continued, they would exceed city revenue in 2010."

But I'll bet that the citizens committee had no idea that the city would be so foolish as to keep raising salaries and benefits.

"The mayor said the warning was ignored by the City Council and city managers. He said the projected day of reckoning arrived three years early, accelerated in part by the economic downturn."

No. It didn't arrive early at all.

"The average police officer will receive a base salary of $121,518 under the current contract, with pension, health coverage and other benefits pushing the total cost to $191,060, said a staff report to the City Council on May 6.

The average firefighter will receive an annual salary, excluding overtime, of $130,112, costing $193,174 with benefits. Ranking officers get much higher pay – for example, a police captain earns a salary of $231,120, and the total with benefits is $347,726."

I don't know for certain but someone that knows told me that firefighters and policemen in Vallejo can retire at 50 and draw 90% of their regular salary adjusted for inflation.

It would take well in excess of $3,000,000 to pay those benefits for one person for 30 years or about the same amount of money, up front, invested, to pay those benefits without destroying the principal.

This same saga goes on in almost every major city in the US.

A very similar game is played by the US Senate and House of Representatives as Social Security and Medicare payments begin to overtake what we pay in.

Vote Democrat and watch the old starve as the Democrats promise you things they can't possibly deliver.