When Vallejo declared bankruptcy in 2008, one collateral consequence was a years-long political duel in the Capitol between lobbyists for local governments and those for unions representing their workers.
Unions pushed legislation that would have required local governments to get permission from an obscure state agency before filing for bankruptcy an agency that is and probably always will be dominated by union-friendly Democratic politicians.
Although it did not come to pass in Vallejo, unions representing police officers, firefighters and other local workers were worried that a federal bankruptcy judge might be willing to abrogate their contracts and perhaps even reduce retirement benefits.
By routing bankruptcies through the state agency, union leaders clearly hoped, officials of insolvent local governments could be barred from seeking payroll relief.
Ultimately, the unions and the local governments, primarily the League of California Cities, agreed to a compromise last year, one that in general required insolvent entities to use mediation to seek relief from creditors and file bankruptcy only as a last resort. It was enacted by the Legislature and signed into law.
Almost immediately, two cities, Mammoth Lakes and Stockton, invoked those procedures, the former because it lost a massive lawsuit and the latter because it had overspent on community facilities, including a new sports arena and a new baseball park, and could not repay its loans.
Whether mediation succeeds in staving off bankruptcy in both cities is uncertain. Nevertheless, the unions are already seeking to change the process back to something closer to their original proposal, and thus make it more difficult for local governments to seek bankruptcy relief.
A measure that contained some minor changes in the pre-bankruptcy procedure, Assembly Bill 1692, was suddenly amended, and the Assembly's Democratic leadership pulled it out of committee last week and set it on the agenda for an Assembly floor vote as early as this week.
"This bill attempts to change a law that hasn't even had a chance to work," the League of California cities said in a letter to Assembly members, complaining that it would "unravel key features of last year's agreement "
It's no secret that other California cities are at least thinking about bankruptcy as their expenses outstrip revenues, including the state's largest, Los Angeles. And it's no secret that payroll and pension costs are the strapped cities' biggest problems.
Could a bankruptcy court, citing the primacy of federal law over state law, set aside local government labor contracts, slash pay and even reduce pension promises? No one knows, but it's happened in corporate bankruptcies, and union leaders don't want the question to be answered.