Vallejo Becomes Largest City in California to File Chapter 9
It's now official: Vallejo is now the largest city in California to file for Chapter 9 protection. Long believed to be in the works, the bay area city filed in the U.S. Bankruptcy Court for the Eastern District of Californiat in Sacramento last Friday [update: Case No. 08-26813; petition and schedules available through PACER]. As described in the San Francisco Chronicle,
This Bay Area suburb of about 120,000 people faces a $16 million deficit in its fiscal year starting July 1. Bankruptcy will keep services running and prevent creditors from suing the city while officials devise a plan to get back on solid financial footing.
Like Vallejo, many U.S. cities are saddled with labor contracts that offer salaries, overtime pay, pensions and health benefits they say they can't afford. Those expenses are expected to balloon as health care costs soar and employees retire earlier and live longer.
Vallejo officials hope the bankruptcy judge will allow the city to rewrite its labor contracts and bring compensation down. If they're successful, other cities may follow their lead, experts say.
As one city official put it, "Vallejo has been spending beyond its means for more than 15 years," said J.D. Miller, a financial planner and longtime Vallejo resident who served on the budget committee. "We've acted like someone who lives their life and spends their money as if their job will always be there."
As the budget crisis takes further hold of California, can other cities be far behind Vallejo?
