California City On Verge Of Bankruptcy
Kurt Brouwer February 21st, 2008
Yikes. A potential municipal bankruptcy in California? I guess we really are done with Good News On The Economy for now. The situation in Vallejo does not sound good. Vallejo — on San Francisco Bay north of SF — is close to bankruptcy due to its underfunded pension plan for union employees in the police and fire departments [emphasis added].
Vallejo On Brink Of Bankruptcy (NBC11.com, February 19, 2008, John Boitnott)
The city of Vallejo is on the brink of becoming the first California city ever to declare bankruptcy, City Council members said Tuesday.
Vallejo may run out of cash as early as March, council member Stephanie Gomes said.
“Not only that, but now we have 20 police and fire employees retiring because they are afraid of not getting their payouts,” Gomes said. “That means we have another few million dollars in payouts that we had not expected. So the situation is quite dire.”
Gomes said the situation has been building for more than a decade.
“This has been happening for quite a while. For 15 years the city council has been putting Band-Aids on the problem. (It has been) extending contracts and deferring payments for public safety to the next years as a way of balancing the current budget.”
Public safety contracts for police and fire services make up 80 percent of the city’s general fund.
“We’ve been spending more than we’ve been making for 20 years and it’s time to pay the piper,” Gomes said.
And, the newly-elected mayor (see below) must be wondering right now why it was that he wanted this job.
Newly elected Mayor Osby Davis is downplaying the possibility, NBC11’s Jodi Hernandez reported.
“I like to look on the positive side,” Davis said. “I’m confident we’re going to be able to work this out without having to file bankruptcy. It’s not an alternative we want the public to believe we’re moving toward with any intention.”
…In a report to the City Council last week, City Manager Joseph Tanner said the city faces a $10.1 million general fund operating deficit for the current fiscal year and a negative available fund balance of $5.9 million on June 30, 2008.
“Based upon the updated financial projections, the current estimate for insolvency is late April 2008,” Tanner said. “It may become necessary for staff to recommend that the City Council consider filing and pursuing Chapter 9 bankruptcy in the event the city is unable to meet its existing obligations with its existing revenues,” Tanner said in the report…”
I am afraid this will not be the last city to find out it has taken on pension obligations it cannot easily pay. We’ll stay tuned to see what happens as this may be a harbinger of things to come in California.
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Now other cities will also follow the Vallejo but it should not happen. Personal bankruptcy filing cases are increasing but cities should not file… DIY4LAW