Bankruptcy of Vallejo CA

Discussion in 'Economics' started by TheStudent, Feb 28, 2008.

  1. Vallejo is on the brink of a dubious distinction - becoming the first city in California to declare bankruptcy.

    The fiscal crisis, which comes more than three years after the state took over the city's debt-ridden public schools, is a result of snowballing police and firefighter salaries and overtime expenses coupled with plummeting tax revenue from the weak housing market, officials say.

    In response, the City Council is considering cutbacks at the city's library, its public swimming pool and its history museum as the city faces the prospects of running out of cash in the coming weeks, officials said Wednesday.

    "It's very, very serious. We're at the point now where there's no more wiggle room," said Councilwoman Stephanie Gomes. "It's pretty dire, and we need to start being honest about what this means."

    The Solano County city began the fiscal year with a $4 million surplus. But it is spending $10 million more than it is receiving in revenue and will face a budget deficit of $6 million by the end of the fiscal year, in June, according to City Manager Joseph Tanner. By mid-April, the city will be unable to pay its employees, Tanner said.

    The council is scheduled to address the crisis at its meeting on Tuesday.

    Tonight, Vallejo residents are expected to pack a town hall meeting hosted by Gomes and Councilwoman Joanne Schivley to learn how bankruptcy would affect the city of 120,000 residents.

    Vallejo is hardly alone in its struggles with spiraling public safety costs. Most cities in California spend about half their general fund on public safety, including salaries, fire engines, police cars, weapons and other supplies, said James Keene of the International City and County Management Association, based in Washington, D.C.

    Cities spend about 75 percent of their general funds on personnel, while the rest goes to libraries, parks, recreation and other services, said Keene, former city manager of Berkeley.

    "It's not just Vallejo. California has some of the highest public safety costs in the nation," Keene said. "In the future, as we enter a downturn, I'd be surprised if we don't see significant changes to that."

    Since the federal government allowed municipalities to declare Chapter 9 bankruptcy during the Depression, fewer than 500 cities have taken the action, according to federal court data. Declaring bankruptcy allows a city to reorganize its debt and still meet basic operating costs.

    The highest-profile bankruptcy case in California was that of Orange County, which declared bankruptcy in 1994 after bad investments led to a $1.6 billion loss.

    Faced with a similar fate, Vallejo is in emergency negotiations with police and fire unions in an attempt to agree on pay cuts. The city also is considering:

    -- Reducing maintenance and supplies at the Vallejo Naval and History Museum, Cunningham Pool and public library.

    -- Rescinding 15 percent pay raises for police and firefighters.

    -- Laying off 16 city employees.

    -- Rotating closures of fire engine companies.

    -- Cutting funding to all community groups.

    Gomes and others have blamed much of the city's financial woes on police and fire contracts, which she says comprise 80 percent of the city's $80 million budget.

    The starting salary for a Vallejo firefighter is about $70,000 a year, among the highest in the state. Ten firefighters earned more than $200,000 each last year, including overtime, city officials said.

    "Of course we value our police and firefighters and the risks they take, but their salaries are simply too high," Gomes said. "They can afford to live in Marin and Napa, and it's the very hard-working, blue-collar residents of Vallejo who are bearing the repercussions. It's unfair."

    Firefighters say their earnings are high because the department is so short-staffed they're forced to work huge amounts of overtime.

    Since 2001, 30 firefighters have retired or left the department, and only three have been hired, said Vallejo fire Capt. Jon Riley, vice president of Fire Fighters Union Local 1186. And after rumors of bankruptcy began circulating, 14 more retired, fearing that their benefits and salaries would be cut, he said.

    "We're having to work an extraordinary amount of overtime," he said. "We make great salaries, but if you're not able to see your family, what good is it?"

    Firefighters typically work 48-hour shifts with four days off between shifts. Many Vallejo firefighters are now forced to work 96-hour shifts with two days off, he said. Sleep deprivation, divorce and child-care complications are common, he said.

    "I'd say morale has hit rock bottom," he said. "But we're still committed to providing the highest level of service to the citizens of Vallejo."

    Vallejo residents, meanwhile, are outraged at the city's economic straits. The problem should have been addressed years ago, when it first became apparent, said community activist Marc Garman.

    "We've been screaming about this for a long time," he said. "It's a mess. It's chaos. It's a disaster. Vallejo's become the poster child for mismanagement. And this may happen throughout California."

    How to get involved
    -- Two city councilwomen will host a community meeting with a bankruptcy lawyer tonight at 7 p.m., 733 Tennessee St., Vallejo.

    -- The City Council meets at 7 p.m. Tuesday at City Hall, 555 Santa Clara St., Vallejo.

    -- The city's report on the budget crisis can be read at

    How Vallejo went broke
    Officials say the Solano County city is likely to run out of cash in a few weeks as a result of expenses that are expected to exceed revenues by about $10 million this year.

    Expenses: Salaries and overtime for police officers and firefighters have burgeoned as a result of union contracts and staff shortages that have forced public safety workers to put in extended hours.

    Revenues: The souring economy has hit the city hard, resulting in nearly $2 million less revenue from sales and property taxes than expected.

    Source: City of Vallejo

    E-mail Carolyn Jones at
  2. sign of things to come??? coming to a town / city / state near you
  3. balda


    Remember Orange County?
  4. da-net


    Just Curious...Could some of you that may have experienced this first hand, share your knowledge of how this effects companies and people that have performed services for governments (contract labor not employees) and are owed monies for those those people get the shaft like it normally happens in bankruptcies? or can they forclose on gov't property? incl future revenues
  5. Whole state of california is close behind. Democrats have run the state into the ground.

    If you live here in California the get ready for tax increases of all types. Income, Sales, Property, etc,

  6. Rome is on FIRE!

  7. maxpi


    And huge penalties for selling everything and moving out too.
  8. TGregg


    Over 2 million of the entire city budget of 80M went to less than a dozen firefighters.
  9. What even makes these kinds of situations "worse" is that firefighters and police will take early "retirement" before the bankruptcy takes hold in order to solidify their pensions.

    Already, about a dozen or so first responders have done so in Vallejo, and this puts even more financial pressure on the town's finances.
    #10     Feb 28, 2008