June 30, 2008
City of Vallejo Seeks to Cancel Union Contracts under the Bankruptcy Code
The City of Vallejo has filed a motion seeking to reject or terminate its four union contracts. The motion can be found here. The hearing is set for July 22, 2008. The city has 407 employees, the bulk of whom belong to one of the unions. It has an annual budget of $87 million of which 76% is labor costs. The reason for the chapter 9 filing according to the motion, "general fund revenues cannot keep up with expenditures." According to the city, it has cut expenditures everywhere else that is legal. It now projects that the bulk of future increases in spending will be in labor and related costs which it maintains are already at top of the market levels, at least for police and fire, and are already beyond the ability of the city to pay.
The motion argues that Section 1113 relating to rejection of union contracts does not apply to chapter 9 cases. That would make sense, especially under the recent Florida v. Piccadilly case, since Section 1113 is located in the chapter 11 part of the code and not in chapter 9.
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