City of Vallejo Files Bankruptcy

THE CITY COUNCIL OF VALLEJO, CALIFORNIA, VOTED UNANIMOUSLY late last night to file for a Chapter 9 bankruptcy.

After hearing several hours of citizen testimony during Tuesday night’s council meeting, they reluctantly voted 7-0 to initiate the procedings. Their accountants and lawyers had recommended that they do it at least one month before the city runs completely out of money, which they are expected to do by the end of June.

The city has been claiming that 80% of the budget is consumed by police and fire departments salaries, thus making it impossible to fund the rest of the city services. But others point out that the budget deficit was caused by a precipitous drop in property tax revenue that was caused primarily by some disastrous actions and decisions made by the City Council over the past few years. In addition, City employee union attorney Alan Davis has said a union-hired financial expert has produced two documents contradicting the city’s assertions of an enormous deficit.

Firegeezer had reported on March 1 (HERE) that the city was trying to negotiate a 6% wage cut and close two fire stations. Those negotiations continued right up until last night without coming to an agreement. Chapter 9 bankruptcy proceedings could freeze some city debts and protect the city from creditors as well as union contract obligations, according to a city staff report. It is uncertain, however, if bankruptcy could void the contracts before they expire in June 2010.

The San Jose Mercury News has this morning’s STORY.

Bloomberg News has filed the following video report:

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Roy

My bet is that the city aims directly at the cops and starts some kind of downsizing operation. If you start talking of downsizing, announce these one by one...then more folks get scared and automatically start looking for employment elsewhere (a common tactic in the business world). You don't fill the slots and just leave them empty.

Lets face it...most folks don't think the cops are going to protect or save them...so they carry a weapon. If a town has 50 cops....they could probably trim fifteen and no one would notice.

Dal90

Municipal bankruptcies are playing with fire -- we all benefit from relatively low costs associated with municipal bonds. Increase the risks of cities defaulting, borrowing at least statewide if not nationwide will go up.

These situations generally come from long term and/or spectacular financial mismanagement.

Bridgeport, CT flirted with in the early 1990s -- something the state immediately said they may do. Waterbury, CT was placed a Financial Oversight Board in the 2000s.

Both of those because the State of Connecticut wasn't going to allow other towns to be at risk of higher borrowing because of those cities.

The Oversight board had broad powers including to vacate any existing labor contracts and impose new contracts without arbitration. In Waterbury's case the firefighters were given the choice -- they could keep minimum manning, or four platoon system customary in the northeast, but not both. They switched to a three platoon system to maintain minimum manning. Hourly wages were adjusted, and while the take-home pay increased it was not proportional to the 25% increase in hours worked.