May 23, 2008

Vallejo CA pulls the plug: Calpers holding the bag on 219 million in unfunded pension benfits

Well this is the shot that will be heard round the world. The question really is what kind of precedent will this set for other cities in the US and in Calif. to deal with the massive public employee pension problem. Like most issues the government deals with I smell a bailout. Taxpayers better grab their wallets and run. I think the time has come for the voters to become the city managers and to hold elections on the "pension giveaways". God knows the politicians cannot be trusted anymore with the public employee unions.

City of Vallejo, California files for bankruptcy
Fri May 23, 2008 5:03pm EDT

By Adam Tanner

SAN FRANCISCO (Reuters) - The city of Vallejo, California, filed for bankruptcy on Friday, a move signaled by its city council earlier this month as it struggles to avoid running out of money amid steep city personnel costs and sliding revenues from a housing slump.

The Chapter 9 filing by Vallejo, a blue-collar, former Navy town in the San Francisco Bay Area, in U.S. bankruptcy court in Sacramento had been expected since May 6, when the city council approved the drastic move.

Vallejo, with over 100,000 residents, is the first sizable city in California to file for bankruptcy. Chapter 9 is a bankruptcy filing for municipalities.

Although many California towns are coping with shrinking tax revenues and some of the highest home foreclosure rates in the nation, they are not likely to follow Vallejo's suit.

Moody's Investors Service said earlier this month that Vallejo's expected bankruptcy filing would be a "unique case."

The state's last bankruptcy filing was in 1994 when Orange County's finances ran aground on soured investments linked to derivatives.


According to the filing signed by City Manager Joseph Tanner, the city has 1,000 to 5,000 creditors, estimated assets of half a billion to $1 billion and liabilities of $100 million to $500 million. Tanner had previously said that the city's general fund would be depleted at the end of June.

Vallejo's main financial difficulty is the high spending on public safety employees, whose costs eat up three-quarters of the city's general fund.

Although the city reached a deal with employees in February for pay cuts and other short-term measures to keep paying bills, the city council said earlier this month that filing for bankruptcy might give it more leverage in talks with workers on wages and benefits.

A document accompanying the filing said that the California Public Employees Retirement System, the nation's largest pension fund, known as Calpers, held the largest unsecured claim, with $135.4 million in retiree health benefits, and another $83.9 million in unfunded pension plan benefits.

Wells Fargo Bank was a bond trustee with $27.3 million in unsecured claims, and the Union Bank of California with $26.2 million in unsecured claims, the document said.

(Reporting by Adam Tanner, writing by Mary Milliken; editing by Leslie Adler)

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