This morning, California pension blogger and former U-T reporter Ed Mendel had a story on the initial plan that the Bay Area city of Vallejo is proposing to emerge from its two-year-old bankruptcy. I decided to take a closer look at the city’s recovery plan.
The plan does not include a reduction in employee pension benefits, even though at $195 million they’re the largest single debt the city has. The reason? They’re protected by state law.
Here’s the relevant section of the plan (p. 20 of the PDF):
The accompanying financial projections are newly formatted to separate the cost of current program services from the debt payments on the city’s legacy costs, which amount to hundreds of millions of dollars in obligations that the city shoulders now for services rendered in the past, including bonds, retiree pensions, and retiree health benefits. These legacy costs consume a large and growing portion of the city’s annual budget that limit the funds available for current services. The largest of these obligations, retiree pensions, are obligations protected by state law that are accordingly not proposed for adjustment through the bankruptcy case (emphasis added).
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