California City Looking to Come out of Bankruptcy

The biggest bankruptcy since Orange County went through it back in 1994 may be coming to an end soon as the City of Vallejo looks to take steps necessary to move out of bankruptcy soon.

City officials for Vallejo filed for chapter 9 bankruptcy in May of 2008. The city had tried to avoid doing so by convincing the local labor unions to accept some salary concessions as the recession really began to take hold. However, since they refused to do so the city was forced to file for bankruptcy as the recession reduced local government tax revenue.

Another town, Desert Hot Springs, was forced to file for bankruptcy when it was hit with a legal verdict it could not cover. Orange County ended up filing in 2001 after some of its investments failed to pay off. Chapter 9 allows municipalities like Vallejo, Desert Hot Springs, and Orange County to reorganize instead of having to liquidate.

Currently the city is due in court with creditors this February, but it is doing what it can to come to an agreement with as many as possible. In late December the city council voted unanimously to approve a series of moves that include raising taxes, freeze bond payments, and slash spending. As it stands the budget for the city is expected to hit $83.5 million in 2014. That would be nearly $30 million more than the city is expected to get in revenue.

Financial conditions for Vallejo are not expected to get any better in the near future either. Estimates currently have the city collected almost one fifth less in property taxes due to home values falling. Administrative workers as well as police have negotiated new contracts with the city in a move intended to help it become more financially stable. Negotiations are ongoing with the labor unions in hopes of finally reaching an equitable arrangement. Next month the city hopes to come to new agreements with electrical workers and local firefighters.

Along with aiding their bottom line by receiving concessions from its employees the city will soon look to the citizens for help in order to cover the $51.6 million in debt that the city has accrued. The city will look to raise $4.5 million through increases in sales and property taxes. Hopes are that an additional $3 million a year can be saved by suspending interest and principal payments from its general fund. The city has already done this once in order to save money (last May- July) before beginning interest payments at a reduced rate of 2%.

Vallejo may not be alone in their troubles. According to a survey taken by the National League of Cities last September, most financial officers expect to see their city's finances get much worse before any improvement.