Vallejo Bankruptcy Tied Up In Binding Arbitration

Police in Vallejo are scheduled to receive a 7 percent pay raise next month, part of a labor contract negotiated after the city declared bankruptcy two years ago.

“The police getting a 7 percent raise is insane,” said Vallejo Councilwoman Marti Brown, elected last November months after the police contract was approved. “No one is getting a 7 percent increase, even in cities not in bankruptcy.”

Brown co-chaired a campaign for a ballot measure to give city negotiators a stronger position at the bargaining table by repealing “binding arbitration.” Measure A held a slim lead after the vote Tuesday, but outstanding ballots are still being counted.

Under binding arbitration, when management and unions do not agree on a new contract, an impartial arbitrator selects the offer of one side or the other. The arbitrator cannot work out a compromise between the two positions.

Brown and two other council members, Stephanie Gomes and Joanne Schivley, said in videos on the Measure A website that union negotiators use binding arbitration as a threat because arbitrators usually select the union position.

Typically, said Schivley, the argument is that the arbitrator is likely to pick the union position and the expensive arbitration will only add to the cost. She said the result has been labor contracts that the city cannot afford.

“There is no doubt that it (binding arbitration) has contributed to the financial situation of the city, which culminated in the bankruptcy filing in May 2008,” Schivley said.

Gomes said 81 cents of every taxpayer dollar collected by the city is spent on employee costs. She said the result of “binding arbitration” is that the city council has not been able to control costs.

“That’s what got us to this place where we have unsustainable contracts,” she said.

Vallejo put “binding arbitration” into the city charter in 1970, Gomes said, during the era of the “Zodiac” serial killer. She said city officials did not want a strike by police or firefighters, but strikes by safety workers were banned shortly afterward.

Officials at the League of California Cities said Vallejo may have been the first to adopt binding arbitration. A count several years ago found that about 20 cities and at least one county have binding arbitration.

About 120 of the 480 cities in California operate under their own charter, like Vallejo. Legislation a decade ago imposed binding arbitration on the rest of the cities and counties operating under general law.

In a lawsuit originating in Sonoma County, the binding arbitration law was ruled unconstitutional and overturned by the courts. But binding arbitration still has strong support from unions and their Democratic allies.

Measure A backers said their shoestring campaign faced well-financed opposition, with some money coming from unions in other cities. The Measure A opponents listed endorsements from a half dozen Democratic congressmen and state legislators.

The Vallejo Times-Herald opposed Measure A, calling it a “distraction” that would not help the city.

“Voters inserted the charter clause four decades ago in part due to the public safety unions’ deep mistrust of City Hall, a feeling that led to an ugly strike,” said the newspaper. “Removing this clause would only ratchet up the current mistrust to new levels, a scenario that serves no useful purpose, and could even be costly to the citizenry.”

The Vallejo bankruptcy is widely watched because the city asked a federal bankruptcy court to overturn labor contracts. That issue did not arise in the Orange County bankruptcy in the 1990s or the lesser-known Desert Hot Springs bankruptcy.

If bankruptcy allows Vallejo to overturn otherwise ironclad labor contracts and shed or restructure pay and retirement costs, will other struggling cities and counties be tempted to do the same?

Taking no chances, public employee unions are backing a bill, AB 155 by Assemblyman Tony Mendoza, D-Norwalk, that would require local governments to go before a labor-friendly commission in Sacramento before filing bankruptcy.

While in bankruptcy, Vallejo negotiated new contracts with three unions: police, firefighters and managers. But there was no agreement with a fourth union, the electrical workers.

In a landmark ruling last September, U.S. Bankruptcy Judge Michael McManus in Sacramento overturned the electrical workers contract after mediation failed. An appeal was heard in March by U.S. District Judge John Mendez and a ruling is pending.

Meanwhile, arbitration of the electrical worker contract began last month. But if Measure A wins and McManus’s decision to overturn the contract is upheld, the arbitration may not continue.

“I would say there is a good chance the city will probably walk away from the table,” said Councilwoman Brown. Then if there is no agreement, she said, the city could impose its final offer.

As a Sacramento city employee who has been on the labor side of the bargaining table, Brown said, she understands the power of binding arbitration. She was part of an unsuccessful drive to put a repeal measure on the Vallejo ballot two years ago.

Brown faults the city for not immediately moving to repeal binding arbitration after declaring bankruptcy. Instead, she said, the city waited for a recommendation from a commission to put a measure on the ballot, passing on a chance for a vote last November.

“We did have some opportunities – a lot of it squandered, unfortunately,” she said.

On Tuesday, the city council is scheduled to consider a hard-times budget and a proposal to put a one-cent sales tax increase on the November ballot.

General fund revenue has dropped nearly 25 percent in the last two years, from $83.6 million in fiscal 2007-08 to an estimated $63.4 million in the new fiscal year beginning next month.

Police officers have been cut from 155 to 104, and without the tax increase may drop to 87. Firefighter companies have been cut from nine to six, and without a tax increase may drop to five.

Concern that a shrinking police force is resulting in more crime in Vallejo has been reported in the San Francisco Chronicle and the Los Angeles Times.

An exception to the deep cuts is pension costs. The proposed budget would spend $12.8 million, about 20 percent of general fund revenue, on the annual payment to the California Public Employees Retirement System.

That’s more than the $10.2 million asked by CalPERS, which adopted a “smoothing” policy to phase in increased payments needed to cover huge investment losses in the stock market crash.

But city officials hope to give Judge McManus a plan for emerging from bankruptcy this summer. And they want to show the city is dealing with long-term debt and not likely to slide back into bankruptcy.

The increased payment results in a projection that the future pension obligation would be 80 percent funded, regarded as an acceptable minimum. Getting to 100 percent would require a payment of $16.5 million, about 25 percent of general fund revenue.

Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at calpensions.com