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The Ethics of a City Filing for Bankruptcy
Thursday, May 15th, 2008
Robert Wechsler
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, has
said, "There's a wave of this coming across the U.S. What happens
in Vallejo could definitely set a precedent."
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.
Click here to read the rest of this blog entry.
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 Huffington Post. He pointed out the causes and ramifications of keeping labor negotiations secret.
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.
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.
"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."
Scheer notes that in bankruptcy court, at least all dealings with unions will be public.
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.
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.
Over the last four years, the city has had seven city managers, 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.
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, the unions came up with a new proposal. 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?
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.
Robert Wechsler
Director of Research-Retired, City Ethics
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.
Click here to read the rest of this blog entry.
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 Huffington Post. He pointed out the causes and ramifications of keeping labor negotiations secret.
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.
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.
"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."
Scheer notes that in bankruptcy court, at least all dealings with unions will be public.
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.
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.
Over the last four years, the city has had seven city managers, 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.
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, the unions came up with a new proposal. 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?
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.
Robert Wechsler
Director of Research-Retired, City Ethics
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