VALLEJO, Calif. -- Mayor Osby Davis, who has lived in this waterfront city across San Pablo Bay from San Francisco for 60 of his 62 years, says: "If you have a can that's leaking two ounces a minute and you put an ounce a minute in it, it's going to get empty." He is describing his city's coffers.
Joseph Tanner, who became city manager after this municipality of 120,000 souls was mismanaged to the brink of bankruptcy, stands at a white board to explain the simple arithmetic that has pushed Vallejo over the brink. Its crisis -- a cash flow insufficient to cover contractual obligations -- came about because (to use figures from the 2007 fiscal year) each of the 100 firemen paid $230 a month in union dues and each of the 140 police officers paid $254 a month, giving their respective unions enormous sums to purchase a compliant City Council.
So a police captain receives $306,000 a year in pay and benefits, a police lieutenant receives $247,644, and the average for firefighters -- 21 of them earn more than $200,000, including overtime -- is $171,000. Furthermore, police and firefighters can store up unused vacation and leave time over their careers and walk away, as one of the more than 20 who recently retired did, with a $370,000 check. Last year, 292 city employees made more than $100,000. And after just five years, all police and firefighters are guaranteed lifetime health benefits.
Even the City Council has at last faced facts and voted 7-0 for bankruptcy. "The day after they voted," Davis says, "I didn't go out of the house -- I was that embarrassed."
In other states, municipalities can pay for improvident labor contracts by increasing property taxes. But Vallejo's promises were made in the context of Proposition 13, which 30 years ago wisely restricted California politicians' reach for property taxes. In 1996, the Navy base in Vallejo closed, which probably pleased some local liberals who share the anti-military mentality of San Francisco, to which some Vallejo residents commute by ferry. Liberals who, Tanner says dryly, "want Vallejo to look a certain way," were pleased when Wal-Mart moved to an adjacent town, which now reaps the sales tax revenues.
Vallejo is an ominous portent for other cities, and some states, few of which are accumulating financial resources sufficient to fulfill pension promises they have made to their employees. Are you weary of worrying about the crisis du jour -- subprime mortgages and all that? Get a head start on worrying about the next debacle by reading Roger Lowenstein's new book, "While America Aged: How Pension Debts Ruined General Motors, Stopped the NYC Subways, Bankrupted San Diego, and Loom as the Next Financial Crisis."