VALLEJO, Calif. — Officials here said Thursday the city is nearing a deal with its largest creditor and looking at curbing employee benefits as it struggles to climb out of bankruptcy.
City manager Phil Batchelor said during a news conference here that Vallejo is close to an agreement with Union Bank, which holds $50 million in city debt, and is also examining the possibility of further reducing employee benefits, including pensions.
The announcement comes after Vallejo earlier in the week filed a recovery plan in federal court that it hopes will allow it to exit from Chapter 9 bankruptcy by this summer. The proposed recovery plan features 297 recommendations, including ways to improve efficiency and city staff morale, and squeeze out more revenues in a dire economic climate, including a proposed sales tax that will appear as a ballot measure 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. “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 employees, noting city staffing levels have been “decimated.”
“I would not recommend bankruptcy to anyone,” he said.
The bankruptcy exit plan Vallejo filed Tuesday sets aside a pool of $6 million to pay unsecured creditors 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.
It also outlines a reorganization of debt owed to the city’s largest creditors, Union Bank and bond insurer, National Public Finance Guarantee Corp.
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 the city with the bankruptcy — said during the news conference that the city expects some creditors to object to the proposed plan.
Vallejo’s filing will be amended after comments from creditors are received and will then be submitted to Judge Michael McManus and eventually voted on by creditors.
Batchelor said the city would be “very happy” to get the bankruptcy plan approved by June but said it could take longer.
The legal plan is based on a five-year road map that seeks to address $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 filed for bankruptcy in May 2008.
Union Bank is owed roughly $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 will provide lease revenue to the bank in exchange for cancelling the certificates.
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 Vallejo’s marina and golf course.
The bank is slated to get 40% less than what it would have received from the original scheduled payments for the COPs, according to the filing.
Union Bank did not return a request for comment.
No other debt — such as the city’s water revenue bonds —will be affected by the bankruptcy, according to Stout.
Vallejo has also said it reached an agreement with NPFG, which had sued for access to California 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, although 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.
“A court decision to interfere with the statutory operation of the Intercept Act would have had a potentially devastating impact on access to capital for other municipalities, not only in California, but 23 other states,” Brown said in a statement.
