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Budget crisis may lead Vallejo to bankruptcy

Labor negotiators met Monday in an urgent effort to hammer out a budget crisis resolution before the Vallejo City Council votes for drastic cuts or to pursue bankruptcy.
Officials from both sides declined to comment publicly on the closed-door talks, which followed the surprise retirement last week of 21 police officers and firefighters. City and union officials now confirm the employees fled out of fear that Vallejo may be unable to buy out accrued sick leave and vacation pay.

Though they remain optimistic, several council members said Monday the city is inching toward bankruptcy. They noted that buying out retirement benefits will exacerbate a $10 million cash shortfall that could leave Vallejo unable to cover payroll within six weeks. But, Mayor Osby Davis said Monday a resolution to the current crisis may be presented to the council by Feb. 26.

Meanwhile, the City Council will receive a closed session update at 6 p.m. today of the ongoing negotiations with the International Association of Firefighters 1186 and the Vallejo Police Officers Association. Last week, the council received an emergency budget plan from City Manager Joe Tanner. It would require widespread layoffs, salary rollbacks, community service cuts and the elimination of key positions in public works, planning and economic development. New fees were also recommended.

The general fund deficit is projected to reach $13.8 million by July 1, 2009. Union and council sources said the

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unexpected public safety retirement buy-outs could cost $4 million more.
As two council members plan a Thursday town hall meeting about bankruptcy, officials familiar with the labor talks say union leaders have recently acknowledged the city's dire situation. Police and fire unions had previously cast doubt on the projected shortfalls, saying city officials would not provide documentation.

"They have come to trust the numbers," Councilwoman Erin Hannigan said of union negotiators.

Hannigan said past labor talks have created a "situation of distrust" that led to union leader skepticism.

Mayor Davis is faced with a council divided on how to handle the unions.

Councilwomen Stephanie Gomes and Joanne Schivley favor a hard-line stance, arguing that the budget is structurally unsound because public safety costs are too high.

Hannigan and three other council members - all backed by the safety unions during the November elections and contests two years ago - favor renegotiating with the unions instead of litigating over cuts.

The fire union's willingness to make salary and staffing concessions is key to any agreement because an arbitrator has ruled that cuts the former majority approved in June violate the union's contract. The same arbitrator is expected to rule soon on a union grievance over proposed police force cuts.

Tanner was unavailable Monday. Until Mayor Davis took over, Tanner had encouraged the council to challenge the arbitrator's award in court.

Fire union president Kurt Henke declined to discuss Monday's talks or characterize how close an agreement may be. He also would not confirm if the union - which has hired its own bankruptcy consultants to work with Vallejo's bankruptcy lawyers - has now accepted the city's budget assessment.

Lead city negotiator, Assistant City Manager Craig Whittom, could not be reached Monday. Last week, he said the city has been strongly advised to avoid filing for bankruptcy.

Gomes and Schivley have scheduled a public meeting called "Vallejo's Financial Crisis, a City on the Brink" for 7 p.m. Thursday at Rick Mariani Photography, 733 Tennessee St., to field questions with attorney Robert McConnell, a city Planning Commissioner.

"We're going to just give out information we have and open it up for questions," Schivley said.

"Our city is teetering on the edge of bankruptcy - we have to add more public process here for citizens to speak out about it," Gomes said Monday.

Vallejo's bankruptcy attorneys advised the city not to hold a public meeting about filing bankruptcy before the Feb. 26 meeting, council members said.

Davis on Monday said his main concern with Thursday's town hall is that it "creates an atmosphere of panic which may not be necessary."

The city's bankruptcy attorneys would be present Feb. 26 for questions and comments should the council decide to take that course of action, Davis said.

Declaring bankruptcy, Davis said, is a risky move to make and one that could stall economic development efforts, and the city's ability to maintain bond ratings.

While Davis said he would never object to council members holding town hall meetings, he said he's concerned speakers may lack enough experience, and that the bankruptcy information may not be accurate or comprehensive.

Gomes said the town hall meeting does not mean she and Schivley favor bankruptcy.

"Nobody wants the city to go bankrupt, but it is a very serious potential reality," Gomes said.

Is Vallejo a nice area or is it a blighted area? I'm surprised it is the first; I guess cities have come close and then somehow salvage themselves. Nowadays you don't hear that much about San Diego's problems but San Diego was also on the verge three years ago.

I don't think homeowners should feel guilty for making good choices. But it is pretty clear that the way is harder for young folks buying homes now. And it is pretty clearly unfair that people who bought in the last few years are paying *so* much more in property taxes than those who bought a few years back. I do rather think that property taxes should be distributed more evenly.

Someone buying today will have a smaller tax bill than someone buying the same house 2 years ago. It doesn't just go one way, although those people can appeal and have their taxes lowered to today's rates they still were paying more than someone buying now.

When the price of a car goes up is it fair that the person buying the car later pays more sales tax and higher registration fees? Just curious about your opinion, I'm not trying make a point.

An interesting observation, our taxes go up a max of 2% per year. For the last 10 years it seems that inflation has been published at about 2%. It is interesting that property taxes for someone like me who bought in 2000 do seem very low which sort of shows how misleading the government figures are.

Ah yes, to not own a home and to rent. It's getting better and better every year. I have just signed my 6th 12-month lease in the same building without facing a rent increase. I have a beautiful 1-bedroom apartment with a balcony by Lake Merritt in Oakland. It's a safe neighborhood and the management has done wonders with the building. It's clean and the gardens are lovely. Whenever I've had a maintenance issue I just right up a service request and it's done in 24 hours usually. How much do I pay? Well I pay $875 per month. That's it. No property taxes, no maintenance costs, no pmi, no arm resets, nada. This is the life. Meanwhile I get my debt under control (from having gone to grad school). I'm just starting to get some breathing room because my housing payments are stable year over year.

The landloard has a long-term commitment to this building. They seismically fitted the building 6 years ago. He's making money since he bought ages and ages ago.

Renting can be bliss.

Is Vallejo a nice area or is it a blighted area? .... Nowadays you don’t hear that much about San Diego’s problems but San Diego was also on the verge three years ago.

Vallejo once had a prosperous middle-class of well-paid workers at the Mare Island Naval Shipyard. That's all gone now and from what I understand (never having lived there) it's sort of a ghost town. It's sad since basic geography would indicate Vallejo should be a nice place: on the bay and on the road to Napa.

San Diego also lost a lot of middle-class jobs from naval shutdowns.

simcha : Renting can be bliss.

I pay $1600 for a 2br in San Francisco.

A simlar (though a bit nicer) flat condo down the street sold for $550K last year. By my reasoning, the taxes alone are about $450 a month. Interest only loan at 6% would be $2750 / mo. Throw in some insurance and maintainence and they are looking at $3500+ month easily.

More than double what I pay? That's just nuts! Especially when I think that they payed 1000's in fees and have probably lost most of their equity by now (down ~9% since peak according to Shiller), and almost certainly will have less equity in 5 years than what they put in.

Then again Ive benefitted from (directly or indirectly):

rent control (12 years)
prop 13 (flat in owner's family for 50 years)
housing bubble (rental vacancies have been high 2001 until recently)

DennisN Says:
February 20th, 2008 at 1:49 am
"Vallejo once had a prosperous middle-class of well-paid workers at the Mare Island Naval Shipyard. That’s all gone now and from what I understand (never having lived there) it’s sort of a ghost town. It’s sad since basic geography would indicate Vallejo should be a nice place: on the bay and on the road to Napa.
San Diego also lost a lot of middle-class jobs from naval shutdowns."

I looked it up on the map and my first impression was, wow, that looks like it should be a nice waterfront city.
San Diego really felt the impact of defense cuts in the 90s. That was when I moved here and it was interesting to see. The economy transformed somewhat; to me it doesn't really have the same military town feel anymore. There are traces, I like to hang out in Oceanside which is definitely unchanged and very Marine oriented. I enjoy sailing on the bay and see first hand that the military is still a real presence here. I do think that there is a void here now like you describe. Combined with offshoring, there has been a loss in good paying industries which were tied to defense but also some spillover capacity from LA. Biotech is still pretty big here, but for the most part San Diego is mostly made up of lots of smaller businesses.

simcha Says:
February 19th, 2008 at 11:43 pm
Discusses his Oakland apartment

I believe your case illustrates how prop 13 benefits renters as well as owners, especially over time. Yes, you don't write the check for the taxes but all those costs you feel like you are avoiding are built into your rent. Renters ultimately pay property taxes just like owners living in their homes.

Oh, one extra note regarding San Diego, the current crisis wan't really caused by an economic slowdown, basically it was caused by pension fund mismanagement. I don't think it was bust from the subprime crisis but that sure isn't going to help.

Malcom,

San Diego has had problems for years. Didn't one of the auditors resign something like 3 years back? (Damn whistle blowers!)

DennisN,

Any on-site intel on Tamarack Resorts? I read over at MISH that their bridge loan collapsed when Soc. Gen. had their trading scandal. Just curious.

Here's the local paper's take on Tamarack. After reading the story I'm still not certain as to what the heck is going on.
www.idahostatesman.com/newsupdates/story/300667.html
I'd always heard that power couple Steffi Graf and Andre Aggasi were the backers of Tamarack but I don't see them named in the story.

Thanks Dennis!

It wasn't until the last line that you learn 76.3 mil. of their 93 mil. in revenue came from "real estate sales". Soc. Gen doesn't have the money and it would seem everyone else w/ the resources to write out a 118 mil. check suddenly can't find their wallet?

God I hate resorts!

I don't know - $17 million in revenue from golf and ski operations sounds pretty good to me. I thought ski resorts around Tahoe struggled to operate in the black.

But you're right - having a business plan dependent upon selling nothing but luxo-resort-condos isn't exactly wise at the present time.

DinOR Says:
February 20th, 2008 at 8:03 am
"Malcom,
San Diego has had problems for years. Didn’t one of the auditors resign something like 3 years back? (Damn whistle blowers!)"

Hi DinOR. I kind of thought you'd share some of your impressions from your shore patrol days here. Yes, you're right and I think that guy is running for office here and some people aren't happy. I'm in a suburb so I don't really follow the city politics too much.

My respect for Obama just went up a few more points:

I prefer to have Hillary Clinton as the Democratic nominee. Obama poses to much threat to McCain.

I don't think McCain has any chance of winning against Obama if he gets the nomination. McCain is nicknamed as Bush III for his stance on war and Mr Bush is the most hated President now.

Malcom,

Don't ever get me wrong (I'd love to spend more time in San Diego!) Our neighbor spends part of the year in Encinitas (sp?) and seldom seems half as aggravated as "I" am!

With escalating housing costs most of my retired buddies have been driven inland. Temecula, Murrieta etc. I lived in Imperial Beach and still check prices there from time to time. That aside it just seems SD has this legacy of corruption (Duke Cunningham and a number of mayors?)

"McCain is nicknamed...." (as?)

Yes by all means let's spread that around as much as possible! WHY... he and the Prez see eye-to-eye on virtually everything! (Especially water-boarding and torture of all kinds)

In fact, I'm ordering my "Let's not elect Bush III again this time either...?...!" bumper stickers as we speak!

Good Lord.

I don’t think McCain has any chance of winning against Obama if he gets the nomination. McCain is nicknamed as Bush III for his stance on war and Mr Bush is the most hated President now.

I think McCain will still win regardless. However, it is nice to see a landslide victory.

The Iraq war is horrible and I am certain McCain can make improvements. Other than Iraq, Bush isn't worse than any big-government Democrat. Also, Bush is NOT the populist politician type that we despise.

I prefer to have Hillary Clinton as the Democratic nominee. Obama poses to much threat to McCain.

McCain's not a bad guy, but between the two, I'll take Obama. Not perfect either, but at least he doesn't have to tow his party's disastrous foreign policy & war baggage with him.

In USA voters generally don't elect old candidates. McCain is 71, and will be 72 by the time he gets into the office early next year (if he gets elected). Regan was the oldest President to be elected at 69 and FDR was youngest at 42.

Regan was the oldest President to be elected at 69 and FDR was youngest at 42.

Many people agree that Reagan is the best President ever.

FDR stole gold from Americans and created the New Deal crap.

FDR stole gold from Americans and created the New Deal crap.

And instituted the SEC, Social Security, the FDIC and steered us (victoriously) through WWII. The New Deal you blithely dismiss as "crap" may also have prevented a Communist revolution during the depths of the Great Depression. Perfect? No. But let's give credit where credit is due.

FYI: my dad might have starved if it weren't for the CCC, so I indirectly owe my life to FDR.

Peter P

What do you mean by "The Iraq war is horrible and I am certain McCain can make improvements"?

Do you think we should continue to support one past mistake or try to improve on past mistakes? In medical terms when one of your body parts is rotten and it starts spreading into other parts of your body it is always suggested to chop off that part before it is too late. We should retreat from IRAQ ASAP. There is no alternative.

Obama's CHANGE campaign is working so well because he is proactive on his stance on IRAQ and other issues. Now, what he does after getting elected is another story.......but for now he saying things that is most obvious and I can agree to that.

Let's try to keep some perspective here: integrity and good ideas have no party affiliation.

DinOR,

Well put. I should get one of those bumper-stickers, too.

I think Bush and McCain both should be sent to the Iraqi desert, where they could wander around for 40years until they regain their senses, if that is possible.

HARM,

>>McCain’s not a bad guy,

Seriously, McCain is a VERY bad guy. He does not see anything wrong with occupying Iraq for 100 years. That would be a mistake of truly biblical proportions.

Here's a thought: You know how it is popular for right-wingers to say well-if-you-hate-America-so-much-then-why-dont you-go-back-to-where-you-came-from?

I propose a twist on that one: If you love occupying {Iraq, CountryX} so much, why don't you go over there and stay as long as the occupation lasts.

Perhaps we should make it a rule that any president that wages war should spend 4 years (or 2 terms) in any country they conquered after they leave office, whether that war is over or not.

We should retreat from IRAQ ASAP. There is no alternative.

Sure. I agree. That should be the goal.

HARM, we should agree to disagree.

It is also arguable that the New Deal worsened the Great Depression.

As an alternative, he could also have incentivized production and investment though targeted tax cuts and tax credits.

Cut and Run will definitely be the big issue this election cycle. The real question, though, is are we referring to housing or Iraq?

The real question, though, is are we referring to housing or Iraq?

People care A LOT more about housing than Iraq. Oops. Hillary may have a chance.

Remember Escaped From DC? He predicted that HRC will become the next FDR.

Something we can all agree on: the Clintons should not be allowed anywhere near the White House.

http://www.thecherokeean.com/news/2008/0220/Front_Page/004.html

“In a campaign swing through East Texas last Friday, former President Bill Clinton…predicted that another one million ‘of your fellow citizens’ are facing foreclosures on homes because of the current mortgage meltdown.”

“‘We’ll tell the mortgage companies: you eat 20 percent, we (the government) will eat 20 percent, you won’t foreclose on these people,’ he said. ‘When you’re in a hole, you quit digging.’”

Umm... what's this "we"? Oh, right: he means savers & responsible taxpayers.

At least McCain is closer to being a supply-sider.

Something we can all agree on: the Clintons should not be allowed anywhere near the White House.

Go watch Definitely, Maybe!

I think the reality is that if Obama were to be elected, Iraq would get worse. Much worse. But I just love the fact that we're already dismissing HC!

If we're basing our judgements on McCain's age the truth is that the man should have died several times over. Hollywood portrays ejecting out of a jet aircraft as some sort of "thrill ride". I'm here to tell you as a first hand witness (it's a 50-50 thing). Even just landing on an aircraft carrier is dicey. Add in the better part of a decade in the "Hilton" and I'd say this is a guy that'll die when he's good and ready.

I vastly prefer McCain to Osama. But I want to see Osama beat Hitlery for the Dumbocrat nomination first.

“‘We’ll tell the mortgage companies: you eat 20 percent, we (the government) will eat 20 percent, you won’t foreclose on these people,’ he said. ‘When you’re in a hole, you quit digging.’”

Umm… what’s this “we”? Oh, right: he means savers & responsible taxpayers.

I completely see your point BUT if any US government forces the banks to split the losses 50-50, I'll be ecstatic. So far there is every indication that they are forcing them to eat practically nothing (what with all the rate reductions and TAF). And the UK seem to be doing even worse (as in nationalizing).

However, as an undecided on the Nov. election, there's a larger issue here for me. Politicians will say whatever during a campaign. One can look at their past history and close allies to guesstimate what they'll actually try (no guarantee of success, see Pres. Bush) to do. On those grounds, where do Obama supporters get their confidence that he's a "good bet" for the US?

(no flames please - I am genuinely stunned by the level of support he is receiving from practically everyone and I'd love to figure it out)