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Pacific Grove Explores Bankruptcy Option

City Tries to Rein in CalPERS, Other Costs



By KEVIN HOWE
Monterey Herald Staff Writer
Updated: 04/19/2009 01:39:32 AM PDT


Bankruptcy — it's not just for banks and auto manufacturers anymore.
Pacific Grove's Budget and Finance Advisory Committee is cautiously probing the implications of the city declaring a Chapter 9 bankruptcy as a solution to its budget woes and entitlement obligations.

The committee Thursday heard a brief report from City Attorney David Laredo, who left with a list of questions to be answered at its May 21 meeting, according to committee member and former Councilwoman Susan Nilmeier.

Talk of municipal bankruptcy has been in the air since U.S. Bankruptcy Judge Michael McManus ruled last month that the city of Vallejo, which filed for Chapter 9 bankruptcy protection in May 2008, has the authority to void its existing union contracts.

The judge contended that Congress did not extend the same projection to public employees that it did to those working in the private sector under Chapter 11 bankruptcy rules.
Cities, McManus said, have broader authority to break existing union agreements than private companies.

Budget and Finance Committee member Barry Dolowich, a certified public accountant, described Thursday's discussion as exploratory in nature.

"It was an open discussion so everybody can understand what Chapter 9 is, what our options are, what the meaning is to PERS (the state Public Employee Retirement System) and MOUs (memoranda of understanding with employees)," he said, "(It was) an information piece.

"We are not making a recommendation to go forward with bankruptcy," Dolowich said, "but to find out what it means for a municipality if that becomes a viable option. The dialogue needs to be started."

The city has been struggling with how to bring its pension costs to CalPERS under control in light of the economic recession. The state pension program relies on investment income to fund benefits and, when these funds fall short, cities and other public agencies enrolled in CalPERS must take up the slack.

Last year then-Councilman Daniel Davis prepared a report on the city pension plan and recommended that the city get out of the state program. He noted that Pacific Grove is already paying off a $19 million pension debt to CalPERS due to the stock market crash starting in 2000.

In November the city's voters approved an advisory measure to the council that it jettison CalPERS.
The committee met with Laredo to learn about the municipal bankruptcy process, said Pacific Grove Management and Budget Director Jim Becklenberg.

"I want to stress that neither the city manager nor I believe that bankruptcy is an imminent concern for the city," he said.

"The City Council has made decisions to bring costs into line with revenues in recent years, which have improved our overall financial health. The budget for the fiscal year that begins on July 1 will be balanced through a combination of further cost reductions and new revenues."

Nevertheless, Becklenberg said, the continuing recession, the city's weak financial reserves and future retirement system liabilities continue to be a cause for significant concern. The Budget and Finance Committee is "prudently scanning the long-term financial horizon with the goal of understanding the city's options, should economic circumstances deteriorate much further than we have already anticipated."

The bankruptcy issue was raised in comments from the public at Wednesday's City Council meeting during a discussion of potential budget balancing measures the city might pursue.

Emilio Alvarez, president of the Pacific Grove General Employees Association, told the council that it should focus on revenue-generating options rather than more cuts or layoffs, which are having a negative impact on city services.

While police have received increases, general employees have had no raises over the past four years and have borne the brunt of staff cuts, he said.

Bankruptcy "doesn't sound like a viable option for the city," Ami Losinger, president of the Pacific Grove Police Officers Association, said.

Pacific Grove continues to fund nonessential services like its museum and library, she said, and hasn't exhausted those options that could justify a bankruptcy.

Vallejo, she said, is apparently using Chapter 9 bankruptcy as "a tool to annul contracts."
The police association, Losinger said, is in discussions with the city about what its members can do to help Pacific Grove through its financial trials.

"I'm glad to see the city is starting to recognize that it's a revenue problem, not just a cost problem," she said. "Year after year we've been losing positions, giving back wages. We're willing to help out, but we don't want to be back next year at the table with the same problems."

Kevin Howe can be reached at 646-4416 or khowe@montereyherald.com.




Last Updated: Apr 21, 09

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