Vallejo City Council Approves New Contract With Firefighters

SAN FRANCISCO — The Vallejo, Calif., City Council approved a new contract with firefighters, cutting its costs and unfunded liabilities as the city moves closer to exiting bankruptcy.

The new, two-year agreement reduces the city’s overall firefighting budget by about half from pre-bankruptcy levels, reduces pension benefits for new employees and lowers the city’s unfunded health-care liabilities by about $21 million.

“Significant strides have been made throughout the city with this contract and with other contracts of adjusting pay and benefits to match what we can afford,” said City Councilman Michael Wilson.

The council voted four to three to accept the new contract. The three dissenters said they were still uncertain that the contract is sustainable.

The council also voted to amend the city’s bankruptcy workout plan to include the terms of the new contract, which is $1.2 million more expensive than the city had hoped.

Vallejo declared bankruptcy in May 2008, saying it could no longer afford to pay workers their contracted salaries. The city owes about $53 million in general-fund backed certificates of participation, and continues to negotiate with creditors to restructure the debts.

The working-class city’s firefighters were among the region’s highest paid before bankruptcy and fought the bankruptcy in court until this year.

The membership of Vallejo’s International Association of Firefighters Local 1186 has ratified the new contract.

The pact leaves the city at odds with just one city worker union, the International Brotherhood of Electrical Workers.

Under the new contract, the San Francisco Bay Area city of 117,000 will spend $12.9 million to provide fire services next year. That’s down from $25.3 million in fiscal 2008-09.

Vallejo’s beginning firefighters will be among the lowest paid in the region, and a firefighter with 10 years in the department will make 24% less than under the old contract.

The contract ratifies an already imposed 2% pay cut and has no pay increases for the next two years. More importantly, the contract does away with longevity pay that had boosted the pay of long-time firefighters, limits the amount of vacation and sick time accruals that will be paid out at retirement and allows the city to reduce services if it finds it can’t afford the contract.

Governments across the country — which face massive unfunded pension and retiree health care liabilities — have been watching the Vallejo bankruptcy to see how much the city could shave off its unfunded liabilities.

In the bankruptcy, the city hasn’t reduced already vested pension obligations, which are well-protected under California law, but the city’s new labor plans dramatically reduce future pension accruals and also reduce existing retiree health liabilities.

The firefighters’ agreement creates a new two-tiered pension plan for workers. Current firefighters will keep pensions that give them 3% of their final wage for each year of service at age 50, but the percentage will be just 2% for new workers.

Existing firefighters also agreed to increase their retirement contributions to 13.4% of pay from 9% to cover the annual cost of their richer benefits. That covers the city’s new accruals, but not the already accrued unfunded liability.

On the health care front, the city did away with a plan that paid full health benefits in fee-for-service health plans in favor of a plan that offers retirees $300 per month to subsidize premiums.

For retirees with smaller pensions, the city will offer a richer subsidy equal to 75% of the Kaiser Bay Area health maintenance organization’s basic plan.

The city plans to implement the plan citywide, which would reduce its unfunded liability to $42 million from $104 million. The firefighters’ share of the liability falls to $11 million from $33 million.

“This [contract] gives us a very, very large return on what we asked for,” said city bankruptcy attorney Marc Levinson of ­Orrick, Herrington & Sutcliffe LLP.

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