Even After Bankruptcy Reorganization, Vallejo, Calif., Struggles with 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 Reuters:

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 intact.

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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