Vallejo California to declare Bankruptcy

Vallejo's city manager advised the City Council on Friday to declare bankruptcy next week after weeks of negotiations with police and fire unions failed to turn around the city's economic tailspin.

If the council votes Tuesday to file for Chapter 9 protection, the city of 117,000 people would be the largest in California to declare bankruptcy - and the first to do so because of long-term economic woes.

City Manager Joseph Tanner made the recommendation after city officials scrambled for two months to fix the budget before the fiscal year ends on June 30, when the city faces a projected $16 million shortfall for the coming year and will have no money in reserve.

"Due to the time constraints we're under, we feel the prudent thing is to be prepared on Tuesday to make this recommendation to the council," city spokeswoman Joann West said. "That said, we still have an opportunity to reach an agreement with labor."

Officials from the city and its public safety unions are scheduled to meet Sunday in a last-ditch effort to reach a compromise after two years of negotiations.

The city is asking for layoffs and steep cuts in salaries and benefits, while union leaders have said that any further cuts would endanger public safety as well as the health and safety of police and firefighters.

Vallejo spends about 74 percent of its $80 million general fund budget on police and fire salaries, about 25 percent higher than the state average. It is not known whether bankruptcy would void the city's labor contracts, which some officials have pointed to as the main reason for the city's financial mess.

If it declared bankruptcy, the city would hope to get protection from creditors and time to reorganize its finances.

Mayor Osby Davis and three others on the seven-member council have been opposed to declaring bankruptcy, fearing the stigma and long-term impact on the city's economic development. Davis said Friday that he was optimistic that an 11th-hour deal could be struck.

"We will still be talking up through Tuesday, I am certain," he said.

Vallejo has been wrangling with the threat of bankruptcy since February, when City Manager Tanner announced that the city would be unable to pay its bills in a matter of weeks. To keep the city afloat through the end of the fiscal year, the council slashed funding for libraries, senior centers, public works and museums.

Sixteen workers were laid off, police and firefighters took a 6.5 percent pay cut, and the city shut down two fire stations.

The city staff set April 22 as the deadline to come up with a long-term financial solution, allowing enough time to set the plan in motion before the fiscal year ended. But the deadline passed without a breakthrough in labor negotiations and without a backup plan put forth by city staff.

Councilwoman Stephanie Gomes said bankruptcy is the "last, best option" for the troubled city.

"This will allow us to get back on our feet and start to recover from years of financial mismanagement," she said. "It's unfortunate, but if this is what the city manager's recommending, I'm going to support it."

Like many cities in California, Vallejo has been stung by the recession, crumbling housing market and spiraling cost of public employee salaries. It also has suffered years of instability at City Hall, where seven people - including, briefly, the chief of police - have served as city manager in four years.

On Monday, Vallejo hired West, a former spokeswoman for the city's Police Department, to guide the city through the intense public scrutiny that's sure to come in the next few months.

West was the highest-paid Vallejo employee last year, taking a $435,638 payout when she retired from the Police Department. Last year, 292 Vallejo workers earned more than $100,000, many of the police officers and firefighters working overtime.

Other members of the City Council and City Hall officials did not return phone calls Friday.