Governing: Vallejo bankruptcy/November 2008: "Are other cities with budget trouble on the verge of asking the courts for relief?
When the town of Vallejo, California, declared bankruptcy this spring, Mayor Osby Davis predicted — and rightly so — that he'd get an earful from his constituents, employees and retirees. What he didn't anticipate was the chorus of phone calls from mayors outside the city, both close by and clear across the country. They told him they were watching Vallejo's bankruptcy proceedings closely, and some of them, he says, indicated that 'they find themselves not too far behind us.'
Vallejo, a city of 120,000 about 35 miles northeast of San Francisco, flat-out went broke this year through a combination of generous public-safety salaries, declining property values and fiscal mismanagement. The city is estimating a $17 million deficit for the current fiscal year.
Previous municipal bankruptcies generally arose from adverse legal rulings or poor investment decisions. But Vallejo's predicament stems largely from economic conditions felt by cities across the nation, namely declining revenues and rising employee costs. And that scares the dickens out of cities, unions and municipal bondholders.
'Vallejo was sort of the canary in the coal mine — the sickest patient goes first,' says Dean Gloster, an attorney representing Vallejo's unions. 'Even better-run cities are going to be facing similar issues as health care costs rise and the baby boomer generation reaches retirement age.'"
