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Pensions Holding Bankrupt CA City’s Head Under Water


Yet another battle over pensions is raging, this time in Vallejo, CA, a city of 115,000. When Vallejo went bankrupt in 2008 with an $18 million deficit, its annual pension payments were $8.82 million (11 percent of the general fund). Since then it has laid off police and firefighters, slashed retiree health benefits, and cut city services. This year, now out of bankruptcy, Vallejo has a $5.2 million budget deficit and $15 million in pension payments (18 percent of the general fund).

Not exactly a recovery. The reason, Reuters reports, is that pensions are the one expense Vallejo didn’t touch. The California Public Employees’ Retirement System (Calpers) is increasing pay rates to improve its funding status. Vallejo, which declined to restructure its pension obligations in bankruptcy, is now being held hostage:

“Our five-year business plan was based on things we knew,” said Deborah Lauchner, the city’s finance director.

“Now we have to figure out a way to pay for these new Calpers rates. Every time we react to the last rate change they impose, they come up with another one.”…

David Skeel, a bankruptcy law professor at the University of Pennsylvania Law School, said: “Vallejo made a conscious decision under enormous pressure not to mess with Calpers. That is a decision coming home to roost.”

Of course, neither municipal bondholders nor Calpers is prepared to be lenient about Vallejo’s financial obligations. That means the ailing city will have to keep cutting services and employees and extracting concessions from unions to keep the Wall Street and pension fund creditors at arm’s length.

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  • Douglas6

    It could file for bankruptcy again and this time around, go to the mat with Calpers.

    • Kavanna

      I mean, what’s municipal bankruptcy for, if not to renegotiate the major and un-repayable obligations?

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