The Vallejo City Council and the Vallejo Police Officers Association approved contract changes that will reduce city labor costs and remove the union from a legal challenge to the city’s bankruptcy filing.

The new contract cuts police staffing costs by 18% compared to the old contract, according to city manager Joseph M. Tanner. The deal will save the city’s $77 million general fund about $6 million in fiscal 2009 and 2010.

Vallejo last May filed the biggest municipal bankruptcy since Orange County, Calif., in 1994. The San Francisco Bay Area city of 117,000 claimed it could no longer afford contracts with its municipal employee unions, and in September, U.S. Bankruptcy Court Judge Michael McManus agreed that the city was bankrupt.

City workers have appealed that insolvency ruling, and the Bankruptcy Appellate Panel of the Ninth Circuit Court of Appeals will hear the appeal Feb. 19. The police contract agreement leaves two labor groups still contesting the city’s bankruptcy — the Independent Association of Firefighters and the International Brotherhood of Electrical Workers.

Vallejo has been paying workers less than their contracted salaries since shortly after filing bankruptcy under a court-approved pendency plan. Unions have been under pressure to settle the case because McManus is scheduled to consider a city request next week that would discard the collective bargaining agreements entirely.

The revised police contract caps salaries at the level the city has paid under the bankruptcy through June 2010 and ties future pay raises to the mean of seven Bay Area cities. It also limits health care payments for current and former employees, eliminates minimum staffing requirements, and reduces leave payouts.

In return for their concessions, the police will get a contract extension through 2012 and receive $1 million in damages to be paid between 2012 and 2015.

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