Even After Bankruptcy Reorganization, Vallejo, Calif., Struggles with Pensions

Don't forget to add the cost of the lawsuit when you try to cut pensions!Before Stockton and San
Bernardino and Detroit, there was Vallejo, California. The port
city, northeast of San Francisco, filed for bankruptcy in 2008,
having racked up a deficit in the millions. It made all sorts of
cuts, slashing jobs, health benefits — pretty much anywhere it
could. But it didn’t touch employee pension costs, and now the city
is discovering they pretty much have nothing else left. Tim Reid
notes at

Less than two years after exiting bankruptcy, the city of
Vallejo, California, is again facing a budget crisis as soaring
pension costs, which were left untouched in the bankruptcy
reorganization, eat up an ever-growing share of tax revenues.

Vallejo’s plight, so soon after bankruptcy, is an object lesson
for three U.S. cities going through that process today – Detroit,
Stockton and San Bernardino, California – because it shows the
importance of dealing with pension obligations as part of a
financial restructuring, experts say.

The Vallejo experience may be particularly relevant to Stockton,
which is further along in its bankruptcy case than Detroit and San
Bernardino and has signaled its intention to leave pension payments

Reid reports that the city now finds itself with a growing
operational deficit yet again. Their payment obligations to the
state’s public employee retirement program have gone from $11
million in 2011 to a current tab of $15 million, consuming 18
percent of the city’s general fund.

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