The Bad News You Haven't Heard Yet

[Crossposted at Daily Kos where it made the rec list and drew some interesting comments]

Despite a deal that may keep it solvent until June, the city of Vallejo, CA, is teetering on the edge of declaring bankruptcy.

Worried yet?

No, hunh? Well, let's squint a little harder at the mess there. Vallejo is an East Bay city of 117,000, not particularly wealthy, with a population split between a fairly diverse working class already hammered by the closure of a Navy shipyard in the '90s and commuters who can't afford to buy closer to San Francisco.

The city government's financial problems have been triggered by the real estate crunch. Falling housing values and one of the highest foreclosure rates in the state have cut sharply into tax revenues. For decades, the city budget has been fudged and jury-rigged to put it technically in balance every year, the kind of thing that happens everywhere as elected officials try to kick fiscal problems downstream to some future administration.

But the spin the California media and the business press has put on the crisis is that it's all the fault of--you'll never guess--greedy unions. Over 75% of Vallejo's general fund goes to police and fire department wages, benefits and pensions. (The California average is closer to 50%.)

A bankruptcy declaration last Thursday was staved off by a last minute set of concessions by the unions including 6.5% pay cuts and closing of two fire stations, as well as a host of other cutbacks in city services. And all that does is buy time for additional scheduled concession negotiations, in advance of budget time in June.

Now let's think about this. I'm not from Cali and I don't know squat about the particularities of Vallejo, but i know it makes me worse than nervous to read stuff like this:

But the mayor, along with the local police and fire union officials who joined him Saturday, was continually interrupted by residents complaining that the unions still were grabbing too big a chunk of Vallejo's shrinking revenues.

Now Vallejo may be a fluke, and some fancy financial footwork may paper this over. But if it isn't, this may be an ugly sneak preview of the next few years.

Cities around the country are in budget trouble already. Outside of the Bush administration, it's hard to find anyone who thinks that housing prices have bottomed out and foreclosures peaked, which means local revenues will continue to fall. Add in the likelihood that the economy is already in a recession, cutting sales taxes and other revenue sources.

The troubled "monolines"--the companies that insure the ratings of bonds and other securities and have taken a bath on the sub-prime mortgage-backed securities now imploding--may themselves have their AAA ratings downgraded. That stands to affect every bond they insure, which include lots of "munis" and state bonds. Lower ratings mean higher interest has to be paid. And right now new bond issues are going unsold which offer to pay interest rates as high as 20%.

This is a recipe for local bankruptcies.

What worries me the most in this scenario is not simply that working people will be forced to give up gains they have fought for and need to keep their families afloat. It's more the potential impact of collapsing local budgets on public sector unions. They are the mainstay of the US trade union movement these days, while fewer than 9% of private sector workers are unionized. A round of concessions, forced by the threat of bankruptcy, or contract abrogations and mass layoffs mandated by bankruptcy courts could well deal a major blow to AFSCME, SEIU, CWA and other unions with big public sector memberships and to the fighting spirit of their members.

And it sure looks like working people in this country are going to need every union and the unions are going to need every member in the months and years to come.