Local News

VALLEJO (CBS 5 / AP / BCN) ― The city of Vallejo and municipal labor leaders reached a tentative deal Thursday that could allow the city to avoid filing for bankruptcy, Mayor Osby Davis told CBS 5. Union representatives also confirmed the deal.

"It's not our only answer to our problems but it's a start," Davis said.

Vallejo's city council had been scheduled to vote Thursday night on whether to seek Chapter 9 bankruptcy protection due a budget deficit caused by onerous labor contracts, a slowing economy and a rash of home foreclosures.

But hours of negotiations throughout the day on Thursday between the city and the police and firefighters unions produced a tentative deal to cut costs from labor contracts, said Kurt Henke, who represented the firefighters in the talks.

Officials did not immediately release details of the agreement, but Davis said a report on the agreement would be posted on the city's Web site sometime Friday.

Meantime, the city council postponed its bankruptcy vote until Monday night. Alan Davis, an attorney for the firefighters and police officers, said that in his view the bankruptcy resolution may no longer be necessary.

"I think (the deal's) a good start to getting Vallejo on a solid economic path," added Henke, who is president of the International Association of Firefighters, Local 1186. "I think everyone's committed to doing everything we possibly can to avoid bankruptcy."

Davis said the agreement, if ratified Monday by the council, would give the city breathing room to work on a larger solution over the next 60 days.

Councilwoman Stephanie Gomes said the answer to the fiscal problems that have raised the possibility of bankruptcy also involve other cost-cutting measures -- not just concessions by the public safety unions.

"Bankruptcy is still an alternative. It has to be a long-term solution. I won't support a short-term solution," Gomes said.

The City Council would need four votes to approve the agreement with the unions and council members Gomes and Joanne Schivley have previously taken hard stand against the labor groups.

The city faces a $9 million budget deficit for its current fiscal year ending in June and is set to run out of money at the end of March, according to City Manager Joseph Tanner, who had recommended the bankruptcy filing.

"Without City Council action, the current estimate of when the city will be unable to pay its debts when they become due is in 30 days, or March 31, 2008," Tanner said in a report to city officials.

Vallejo could become the largest California city to declare bankruptcy. In 2001, the town of Desert Hot Springs filed for bankruptcy protection after it lost a lawsuit to a developer.

Vallejo, a mostly blue-collar city of 120,000 in Solano County, has been hit especially hard by the mortgage crisis and has one of the nation's highest foreclosure rates.

The city, home to a Six Flags amusement park and a shuttered naval shipyard, is collecting less tax revenue than projected as retail sales and property values decline amid an economic downturn.

At the same time, Vallejo faces escalating costs for its police and firefighters, whose pay and benefits make up nearly 80 percent of its general fund budget.

Filing for bankruptcy protection would protect city officials from lawsuits and give them time to renegotiate contracts with employees, vendors and bondholders. But the move would lead to costly legal expenses and damage its credit rating and ability to sell municipal bonds not to mention its reputation.

"There's a stigma to entering bankruptcy, but people and companies survive and can come out stronger," said Mark Levinson, a bankruptcy attorney hired by Vallejo.

Whether or not the city files for bankruptcy, Vallejo residents are being warned about reductions in police patrols, library hours, road repairs and other services.

Many California cities are paying attention to Vallejo's plight because they're also struggling with financial problems caused by shrinking revenue and ballooning employee expenses.

"The solution that comes out for Vallejo may very well be a model for other cities facing fiscal challenges," said Marcia Fritz, vice president of the California Foundation for Fiscal Responsibility.

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