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Unions Set to Resist Vallejo Plan for 10 Cents on the Dollar

SAN FRANCISCO — Union workers are poised to fight a bankruptcy-exit proposal from Vallejo that has the California city paying them as little as 10 cents on the dollar.

Dean Gloster, the lawyer representing two of the city largest unions in the bankruptcy case, said the city has not negotiated in good faith so far with the union member creditors.

“The issue is whether or not the plan is fair and equitable and that remains to be seen,” said Gloster, a partner with Farella Braun & Martell LLP. “I would be surprised if individual workers felt that they were being fairly treated under a plan that paid some number on the order of 10 cents on the dollar.”

Gloster represents the International Brotherhood of Electrical Workers and the International Association of Fire Fighters. He said the national organizations of the two unions have been providing financial support for the court case.

Union workers with claims against Vallejo and other unsecured creditors are slated to get paid from a pool of $6 million over two years — an estimated 5% to 20% of what they are seeking.

Some will get access to an insurance pool, according to plan filed in U.S. Bankruptcy Court for the Eastern District in Sacramento.

The union workers are trying to recover money lost when the city forced the renegotiations of their contracts through bankruptcy court.

The third major city union is the Vallejo Police Officers Association. A fourth union represents city management.

Vallejo has received 1,013 proofs of claims. They include 969 general unsecured claims, 12 unsecured priority claims, and 32 secured claims, according to the court documents.

The claims totaled $479 million, with $262 million of general unsecured claims, $45 million of unsecured priority claims and $172 million of secured claims, the filing said.

Vallejo, a 50-square mile city in the Bay Area with a population of around 120,000 residents, filed for bankruptcy in May 2008 in response to what it called unsustainable labor contracts and dwindling tax collections.

The filing represents the largest municipal bankruptcy in California since Orange County in 1994.

The legal exit plan is based on a five-year road map approved by City Council that tackles $195 million in unfunded pension obligations, cuts payments for retiree health care, reduces pension benefits for new employees, raises pension contributions for current workers, and creates a rainy-day fund.

Gloster maintains that the bankruptcy has been mainly presented by the city as a problem with the general fund and high union salary and benefit costs, rather than as a result of fiscal mismanagement. He noted that some IBEW workers are paid out of a water fund linked to ratepayers, which could be increased to account for the claims.

The city’s redevelopment agency owes the general fund $10 million, according Gloster.

Vallejo has some bonds tied to restricted funds, such as water revenue bonds, that have so far been unaffected by the ­bankruptcy.

Marc Levinson, the city’s bankruptcy attorney, said there is concern unsecured creditors could drag out the bankruptcy proceedings. He is a partner with Orrick, Herrington & Sutcliffe LLP.

“Are the committee and the employees and the unions going to cause the city to spend $1 million to confirm this plan, or can we just get together and get this thing behind us and let the city recover?” Levinson said. “Everyone has the right to fight, I just wish we could move on.”

Vallejo has spent more than $8 million on lawyers’ fees so far, according to the city.

The next hearing in the bankruptcy case will address approval of Vallejo’s disclosure statement that outlines the exit plan in simpler terms. It is scheduled for March 7. The plan could be approved as early as June but may take longer, according to city officials.

Creditors will vote on the plan following approval of the disclosure statement. The judge will decide how to resolve issues raised by those who vote against the city before giving his approval.

Dale Ginter, a partner at Downey Brand LLP, is representing the retiree committee. Retirees account for a portion of the unsecured creditors, which are seeking lost benefits.

Ginter declined to comment on the proposed plan.

The bankruptcy exit plan Vallejo filed last month outlines the reorganization of debt the city owes to its largest creditors, Union Bank and bond insurer National Public Finance.

Each creditor will receive reduced and restructured payments under the tentative deals reached with them.

Union Bank will take a 40% haircut according to the initial agreement, which is pending court approval.

“Fundamentally, Vallejo did not want to create problems for the bondholders because Vallejo wants to go back to the public debt market,” Gloster said.

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