Budget Woes May Force Vallejo to Declare Bankruptcy

Vallejo, CABankruptcy may be in the near future for Vallejo because of a budget crisis that is only getting worse due to rising payroll expenses, failing tax revenue, and a slumping housing market. On Thursday, the city council is expected to vote on whether or not they agree with the city manager's advice that the city should file for Chapter 9 bankruptcy. Chapter 9 bankruptcy would give the city the ability to renegotiate its debts with its creditors.

City officials had a closed session on Wednesday night at city hall to talk about the possible bankruptcy. However, some of the officials still hold hope that some kind of solution can be found to avoid bankruptcy. Their financial situation is worsening every day and they all agree that bankruptcy is a last resort, but it seems that their financial situation is leading them down that road. If no solution can be found, they will have no other choice than to seek protection.

The City Council also considered a fiscal emergency plan that involves eliminating certain jobs and cutting salaries of city workers, as well as making cuts within the city's various departments such as maintenance and some community-based organization.

The reason the city is considering bankruptcy is because the city will be $9 million in the red in June, which is the end of their fiscal year. The mayor, Joseph Tanner, has said that the longest the city can go without a resolution is the end of April.

In Tanner's February 13th report to the City Council, he listed bankruptcy as the fourth option in regards to possible solutions. Since then, it has already been moved to the top of the list because he and some of the officials feel that they cannot wait until the end of April for a solution. They feel that the "point of no return" will most likely occur at the end of March.

The reason for this shortfall is because the city is expected to generate $5 million less in their fiscal year than what was projected because of low property values and a decline in retail sales. The slowing real estate market and the economic slowdown have had an extremely negative impact on the city.

In the meantime, Vallejo is facing rising payroll costs for police officers and firefighters whose wages and benefits account for 80% of the money budgeted in the city's general fund. Like many cities in California, Vallejo made salary, benefit and retirement package promises that it doesn't have the money to pay. They signed generous contracts with their employees during times when the economy was doing well. Despite the economic woes, the cities that have made such contracts with their employees have to continue to pay the same wages, the same benefits, and the same retirement packages that were paid during economically flush times.

However, officials with Vallejo have been negotiating pay cuts, but have not reached any kind of agreement with the respective unions. The worker contracts do not expire until 2010, but a total of 21 firefighters and police officers suddenly retired early in February in fear they would not receive sick pay buy-outs and accrued vacation time if the city filed bankruptcy. This costs the city an additional $4 to $5 million.

Filing Bankruptcy will allow the city to negotiate contracts with employees and all other creditors in which the city is in debt. However, this will damage the city's credit rating and result in very expensive legal fees. Unfortunately, there are more cities in California that could follow Vallejo's lead because the same economic poisons are affecting them as well.

By Ginger Gillenwater