VALLEJO, Calif. — Officials said Thursday that Vallejo is nearing a deal with its largest creditor and is looking at curbing employee benefits as it struggles to climb out of bankruptcy.
City manager Phil Batchelor said during a news conference that the California city is close to an agreement with Union Bank, which holds $50 million of its debt, and is also considering further cuts in employee benefits, with pensions as a main target.
The announcement comes after the city earlier in the week filed a recovery plan in federal court that it hopes will allow it to exit from Chapter 9 bankruptcy.
The proposed recovery plan features 297 recommendations, including ways to improve efficiency and morale and squeeze out revenue in a dire economic climate, including a proposed sales tax ballot in November.
“We are trying to create a vision of the future that is different from the past,” Batchelor said during a press conference at city hall on Thursday. “We will look to rebuild the city.”
Batchelor said Vallejo has reached a point where it does not need to make any more reductions in services or reduce employee rolls, noting city staffing levels have been “decimated.”
“I would not recommend bankruptcy to anyone,” he said.
Vallejo’s bankruptcy exit plan filed Tuesday outlines the reorganization of debt the city owes to its largest creditors, Union Bank and bond insurer National Public Finance Guarantee Corp. It also sets aside a pool of $6 million to pay unsecured creditors from 5% to 20% of their claims over two years, according to court documents filed in U.S. Bankruptcy Court for the Eastern District in Sacramento.
The city received 1,013 proofs of claims, of which 969 were general unsecured claims, 12 were unsecured priority claims, and 32 were 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.
Creditors “will get whatever we can afford to pay,” Batchelor said. “We are saying this is the most we can come up with.”
Robert Stout, the city’s recently retired finance director who is still assisting with the bankruptcy, said during the news conference the city expects some creditors to object to the proposed plan.
Vallejo’s filing will be amended after comments from creditors about the proposed plan are received. It will then be submitted to the Judge Michael McManus and voted on by creditors.
Batchelor said the city would be “very happy” to get the plan approved by June but added that it could take longer.
The legal plan is based on a five-year road map approved by the 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.
Vallejo, a 50-square mile city in the Bay Area with a population of 120,000, filed for bankruptcy in May 2008 in response to what it called unsustainable labor contracts and dwindling tax collections.
It is the state’s largest municipal bankruptcy since Orange County’s in 1994.
Union Bank is owed $50 million after it issued letters of credit to back four series of defaulted certificates of participation. It would get a new lease-leaseback obligation, which would provide lease revenues to the bank in exchange for canceling the COPs.
Stout said the city decided to offer one note to the bank to replace the COP series, saying it made more sense than issuing new certificates. He said the proposed deal with Union Bank also includes replacing debt tied to the city’s marina and golf course.
The bank is slated to get 40% less than what it would have received from the original COP payments, the filing said.
Union Bank did not return a request for comment.
No other bonds will be affected by the bankruptcy, Stout said.
Vallejo said it has also reached an agreement with NPFG, which had sued for access to state vehicle-license fees that backed $4.8 million of defaulted 1999 COPs. Under the plan, the insurer would get reduced and restructured payments for more than a decade, though it will get access to the city’s motor-vehicle license fees through a state intercept program meant to help secure debt.
Kevin Brown, a spokesman for National, said the agreement is subject to City Council approval next week.