Professor Elam

Monday March 29, 0210

We are studying the calculation of pension costs. Vallejo, as Mish says, was the first city to take bankruptcy, in the latest financial crisis. But BK is all about a fresh start, that is hardly the case here. Too many places have off balance sheet liabilities far exceeding their ability to pay. This is the big problem and it must be addressed this year.

From  Mish Shedlock, today

In 2008, Vallejo, Calif., was nearly broke. Faced with falling tax revenues, rising pension costs, and unmovable public-employee unions, the city was unable to pay its bills and declared bankruptcy. Now, as it prepares to emerge from Chapter 9, officials in Los Angeles, San Diego and other cities across the state are looking to see if Vallejo has blazed a trail for them to get out from under their own crushing pension costs. What they're finding is that even bankruptcy may not be enough to break the grip unions have on the public purse.

A report issued by the Cato Institute last September noted that 74% of the city's general budget was eaten up by police and firefighter salaries and overtime along with pension obligations.

The study also found that lavish pay and benefit packages were a root cause of the city's problems. In Vallejo compensation packages for police captains top $300,000 a year and average $171,000 a year for firefighters. Regular public employees in the city can retire at age 55 with 81% of their final year's pay guaranteed. Police and fire officials can retire at age 50 with a pension that pays them 90% of their final year's salary every year for life and the lives of their spouses.