Three years after Vallejo, California declared bankruptcy the city has presented the court with an 81-page plan, agreed to by creditors, to fix the city’s finances. A federal judge has approved the plan which is not yet available.
An earlier draft of the plan contains some union concessions including reduced health care benefits. Pensions will remain in place. The cost of unionized employees, whose salaries and benefits consumed 70 percent of the city’s general fund budget came in the form of layoffs and fewer fire stations, as well as reductions to libraries, recreation and convention centers.
According to The Wall Street Journal, bankruptcy proceedings have cost Vallejo $9 million, and residents have fewer city services.
The city did pay bondholders holding revenue bonds throughout the proceedings. The Bond Buyer reports that General Fund bonds were serviced at less than contractual rates, and payments were suspended between July 2008 and April 2009.
As with Central Falls, debt isn’t the driver of huge deficits. In Vallejo debt-service costs were only six percent of the city’s budget. In both cases the culprit behind municipal insolvency is not bond debt but increasing pension benefits and employee costs.