Politics

Vallejo City Council Set To Vote On Bankruptcy

VALLEJO (CBS 5 / AP / BCN) ― The Vallejo City Council was set to decide Tuesday night whether the financially strapped city should declare Chapter 9 bankruptcy to deal with a spiraling budget crisis.

If the council decides to file for bankruptcy, the Bay Area community of 117,000 people would become the largest city in California to do so.

City Manager Joseph Tanner has advised the council to file for bankruptcy before its fiscal year ends on June 30 because the city faces a projected budget deficit of $16 million and has no money in its reserves.

Many officials and residents attribute Vallejo's fiscal troubles to overly generous pay and benefits to the city's police and firefighters. Labor contracts for the groups don't expire until June 2010, but supporters of bankruptcy said those contracts would be reworked as part of the bankruptcy process.

A city staff report released laast Friday said the salaries for police and firefighters currently take up 75 to 80 percent of the city's $87 million general fund budget.

The city also is expected to generate $5 million less in revenue than projected because retail sales and property values are down amid an economic slowdown and slumping real estate market, according to a report issued by Tanner.

City and union leaders met for last-minute talks on Sunday, but the two sides did not reach an agreement that would solve Vallejo's budget problems.

"After the weekend negotiations, the city manager's recommendation to file for bankruptcy protection remains the same," said Councilwoman Stephanie Gomes, who supports the decision to file for Chapter 9 protection.

"It's about starting fresh, that's what bankruptcy is for personally and it's the same for (a city). It's time to fix the problem and stop messing around," she said.

Mayor Osby Davis, however, has resisted filing for bankruptcy and argued that it will stigmatize Vallejo and hurt future economic development. Davis was not available for comment Tuesday, his office said.

Other critics of filing Chapter 9 warn that if a bankruptcy judge does not rule in the city's favor, the legal costs of the proceedings could sink the city further in debt.

A number of cuts to city services have been proposed as a way to avoid bankruptcy including closing two fire stations, laying off police officers and reducing public works maintenance to roads, recycling services and libraries.

If the City Council approves, Vallejo would be the first California city to declare bankruptcy because its revenues cannot cover expenses, experts say.

Desert Hot Springs, a small town in Riverside County, filed for bankruptcy in 2001 after losing a lawsuit. Orange County declared bankruptcy in 1994 after it lost money in a series of bad investments.

"There is a stigma associated with bankruptcy that's not necessarily warranted," said Sajan George, an Atlanta-based financial turnaround consultant who worked on the Orange County bankruptcy.

"My message to residents of Vallejo is, this is not a death knell and should not be equated with that," George said.

"We put together a plan for Orange County, issued municipal bonds that allowed county to emerge from Chapter 9 a couple of years later, and now Orange County is thriving."

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