Judge lets bankrupt Vallejo void union pacts VALLEJO

In a move that's sure to have repercussions for cash-strapped cities across the state, a judge has ruled that Vallejo can nullify its union contracts as part of its bankruptcy restructuring.

U.S. Bankruptcy Court Judge Michael McManus ruled Friday that the city can reject its contracts with its fire and electrical workers unions, allowing the city to begin negotiations from scratch.

"I'm very satisfied. It confirms what we've been saying all along," said Mayor Osby Davis.

The city's bankruptcy legal bills have topped $4 million, Davis said. Fire union chief Kurt Henke said the total is closer to $7 million.

Vallejo declared bankruptcy in May 2008 after failing to close a $9 million deficit in its $83 million general fund budget. This year the city of 120,000 faces a $12 million deficit.

McManus called for a hearing March 23 on the status of the city's labor negotiations. He's then expected to rule on further details of the case. The city last month settled with its police union, removing it from the bankruptcy proceedings.

Labor leaders said Friday's ruling was an attempt to strip the fire and electrical unions of their bargaining power. The fire union has offered numerous concessions - including an 8.2 percent pay cut - and has been negotiating in good faith, Henke said.

"They will fight us and fight us and fight us," Henke said. "This isn't about doing the right thing, it's about power."

The city has blamed its unions for much of its financial turmoil. About 74 percent of the general fund budget goes to police and fire salaries, compared to 50 percent for most other California cities.

The unions say the city has intentionally shrunk the general fund to inflate the percentage spent on public safety salaries, and that the city's other funds are financially healthy.

The unions appealed the bankruptcy filing and the case is being heard by a bankruptcy appellate panel.

Marc Levinson, Vallejo's bankruptcy attorney, said the judge's ruling was expected.

"It's an important ruling because it's the first that takes the issue (of city labor contracts) head-on," he said.

Companies in Chapter 11 bankruptcy are allowed to nullify their labor contracts, but Chapter 9 municipal bankruptcies are so rare that the issue has never before been examined, Levinson said.