Vallejo became the largest California city to seek bankruptcy protection a week after it rejected an offer by labor unions for $10 million in pay cuts.
The Northern California city listed assets of $500 million to $1 billion and debt of $100 million to $500 million in its Chapter 9 filing today in U.S. Bankruptcy Court in Sacramento. Bankruptcy protection would keep city services running and freeze creditor claims while officials devise a recovery plan.
“It’s a bittersweet moment,” City Councilwoman Stephanie Gomes said in a phone interview. “It’s bitter because our city is in such pain, but it’s sweet because we are finally addressing our problems. We are finally addressing it head on.”
Embarassing though it is, this bankruptcy filing is probably a good move for Vallejo, whose municipal government has long been out to lunch on De Nile. The city has bloated payroll costs, which will be easier to trim in bankruptcy court than by negotiation.
Not just Vallejo, Irenaeus; this is an epidemic of ignorance and denial throughout California. The biggest problem is that during the dot com boom of the 90s, state and local govt, led by our late, recalled governor, Gray Davis, passed around the myth that the “excess” funding of the public defined benefit plans “belonged to the employees”. Politicians, always lavish with other people’s money raised pensions substantially. Then, when the dot com bust came and there were insufficient assets to fund the new, higher pensions, everyone was scratching their heads wondering how the crisis occurred. Now I think people have a little better idea why assets supporting a defined benefit plan belong to the employer, because the employer is liable for any shortfall, unlike defined contribution plans, such as 401(k)s.
Another reason for the bad financial state of many towns and counties in Calif. is Prop; 13, passed many years ago purportedly to protect older people on fixed incomes from increases in property taxes year by year. Commercial property was able to piggyback on this arrangement. I forget what the threshold year was, but it was some time ago.
No, rob k, Prop 13, passed in 1978, is the favorite scapegoat for govt financial problems. The massive real estate inflation of the last 20 years has more than offset the limited increases to prop 13 property. E.g. several years ago a study showed that from 1970-1990, K-12 education expenditures (funded by property taxes) per student doubled when measured in constant (i.e. inflation-adjusted) dollars. The accuracy was confirmed for me by a principal, noting that the real problem with education funding was that many non-education programs had been mandated and labeled “education”, leaving inadequate funding for real teaching.
Bill – I wasn’t commenting on state funded education. It’s the counties and munincipalities that depend on property taxes that have been crippled in their ability to provide all sorts of services – police, fire protection, libraries, etc.
Rob, the state funds education beccause it took over the property tax receipts for education, promising to return them. It has done so fully. The bottom line is that property tax receipts overall have risen, but they have not been able to keep up with the much greater rise in govt spending, well over the cost of living
“State and local govt…passed around the myth that the ‘excess’ funding of the public defined benefit plans ‘belonged to the employees'” —Bill Matz [#2]
That’s outrageous. If the pension fund’s investments had performed poorly, the state would still have had to pay pensions at the rates it had previously specified.
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The Proposition 13 assessment provisions—limiting annual increases in the assessed value of property to 2%, not matter how much market values increase—are still a disgrace. The rule should be to assess property at fair market value. If governments want to give special breaks to special folks (e.g., farmers and the elderly), do it openly.
There are other ways to restrain governments that use rising property values to let spending balloon.
No. 7 – Right you are. And the pitch for Prop. 13 was mainly to the elderly & middle-aged home owners, with little mention of the other features of the proposition.