The Ethics of a City Filing for Bankruptcy
The city of Vallejo, California (pop. 117,000) is about to file for
bankruptcy, primarily, it appears, to allow it to void union contracts
and have a bankruptcy judge rather than negotiations work out a new
contract. Sajan George, an adviser to struggling public entities, <a href="http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/05/11/BA6E10JVID…; target="”_blank”">has
said</a>, "There's a wave of this coming across the U.S. What happens
in Vallejo could definitely set a precedent."<br>
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This situation is certainly the result of economic forces:
recession, falling house prices and foreclosures, the closing of a
shipyard and a Walmart. But there are other causes that fall into the
realm of ethics.<br>
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<a href="http://www.cityethics.org/node/439">Click here to read the rest of this blog entry.</a>
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One ethical issue that may not immediately come to mind was discussed
a few days ago by Peter Scheer, executive director of the California
First Amendment Coalition, in <a href="http://www.huffingtonpost.com/peter-scheer/vallejos-bankruptcy-might_b_…; target="”_blank”">Huffington
Post</a>. He pointed out the causes and ramifications of keeping labor
negotiations secret.<br>
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It is common for open-meetings laws to have an exception for labor
negotiations. The reason usually given for having secret labor negotiations is that
neither side wants to show its hand. However, whatever is said
between them is on the table, and should be made public.<br>
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According to Scheer, this exception allows public officials and unions to "avoid public
discussion of the true cost and fiscal impact of the pay deals that
they have approved. ... By the time the public gets to see the
compensation provisions of a new union contract, it is already a done
deal --- indeed, any effort to change the terms likely would be a
breach of the contract.<br>
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"This cozy arrangement is very much in the unions' interest, since
transparency would risk public opposition, and very much in
politicians' interest, since they get to be generous with public funds
without having to be responsible for them. Only one party is
screwed: the public."<br>
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Scheer notes that in bankruptcy court, at least all dealings with unions
will be public.<br>
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Another issue here is misrepresentation. The city government and
the unions keep bickering over statistics and other information. The
city and the unions are even arguing over whether or not there is a
deficit. In a business negotiation, the parties can fight all they want
over what the situation is, each of them interpreting numbers in a way
that helps their side. But in a public sector labor negotiation,
both sides of the table are supposed to be acting in the public
interest rather than in their personal interests. They are all
public servants. And therefore, they do not have this same right to put
information in a light that helps their cause. They have a
responsibility to be truthful, so that the public can understand what
is happening.<br>
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Another ethical issue here is competence. Competence is not
usually considered an ethical issue, and within a wide range it is
not. However, Vallejo seems to have been run exceptionally badly, which
is one reason why it is having a harder time than other cities dealing
with the same problems.<br>
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Over the last four years, <a href="http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/05/03/MNIJ10FV5N…; target="”_blank”">the
city has had seven city managers,</a> including, for a short period, the
chief of police. The current city manager suddenly announced in
February that the city would be unable to pay its bills in a matter
of weeks. It would be nice to have a bit more notice.<br>
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Sadly, the great majority of online comments blame everything on
the unions. It doesn't help that between the time the council voted to
file for bankruptcy and the filing itself, <a href="http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/05/13/BA2710L7BD…; target="”_blank”">the
unions came up with a new proposal</a>. It looks like the
threat of a bankruptcy filing was smart strategy for the city
government. But union negotiations shouldn't come to this, should
they?<br>
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To be fair, bankruptcy proceedings are often used for purposes other
than what they were meant for, although not by municipalities (municipal bankruptcy itself is extremely rare). It's not responsible for
government to take this route, but it's also not responsible for
government unions to force such an action. Open, responsible
negotiations, where both sides manage to agree at least on the facts,
would be far better than what has taken place in Vallejo.<br>
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Robert Wechsler<br>
Director of Research-Retired, City Ethics<br>