SACRAMENTO - Lawyers for Vallejo, Calif.'s public employees said they will contest the city's bankruptcy filing, saying the city "inflated" its budget for next year to make itself look insolvent.
Vallejo Friday filed for protection from creditors on the grounds that it faced a $17 million budget gap for fiscal 2008-2009 and would deplete its general fund by June 30.
Chief Judge Michael McManus yesterday agreed to give creditors, including the unions, more time to file full objections to the bankruptcy filing. He set June 27 as the deadline for those filings.
The unions - the Vallejo Police Officers Association, the International Association of Firefighters Local 1186, and the International Brotherhood of Electrical Workers Local 2376 - said they have offered the salary reductions that would have avoided the bankruptcy and plan to formally contest the filing.
The city's bankruptcy and labor negotiations were "based on a budget where certain expenses appear to be inflated," including "excessive" interest projections for Vallejo's outstanding certificates of participation, union bankruptcy lawyer Dean Gloster of Farella, Braun and Martell said in a filing.
In addition, the unions said they offered to extend a temporary 6.5% pay cut, accept the closure of two fire houses, and forego raises they were due at the beginning of the new fiscal year. City workers argued that Vallejo would still be solvent if it had accepted these and other concessions, while implementing modest revenue increases and cost reductions recommended by labor's financial consultant, Harvey Rose and Associates.
The Harvey Rose firm - which also serves as the independent budget analyst to the San Francisco Board of Supervisors - recommended that Vallejo delay replacement of vehicles, repay loans from the general fund to a cash-rich redevelopment fund, leave vacant positions unfilled, and apply for all of the reimbursements it is eligible for from the state of California.
The union's filing was its rebuttal to a city-proposed June 9 deadline for filing objections to the bankruptcy, not its full objection to the bankruptcy, but it revealed the union's position in the negotiations that led up to the bankruptcy filing.
"It is almost inconceivable to me that the city is considering the mass financial carnage and uncertainty of a Chapter 9 filing instead of accepting the unions' proposal," Gloster said in a letter to city lawyers dated May 15 and attached to the unions' filing. He said the unions had offered the city concessions that would have created a budget surplus, while avoiding the delay and uncertainty of a bankruptcy filing.
Gloster added that the unions would not get in line behind other unsecured creditors, such as bondholders, if the city rejected the union's offer to avoid bankruptcy.
Vallejo has about $163 million of long-term debt outstanding and estimated that it owes $80 million in unsecured municipal-bond related debts to MBIA Inc., Union Bank of California,and Wells Fargo & Co. None of those creditors has yet objected to the filing.
