Vallejo to Become Largest California City to File for Bankruptcy

Sarah Rohrs


 
 

| Thursday, May 8, 2008


VALLEJO,Calif. -- With hundreds of concerned residents looking on, the Vallejo City Council voted unanimously late Tuesday to file for bankruptcy, making the city the first of its size to seek protection due to unaffordable labor contracts.

The dramatic vote came despite a last-minute appeal by state Sen. Pat Wiggins, D-Santa Rosa, and an aide for Assembly woman Noreen Evans for the city to avoid bankruptcy.

Four council members Michael Wilson, Tom Bartee, Hermie Sunga and Erin Hannigan joined Mayor Osby Davis in switching in favor of filing for bankruptcy. In the past they had been part of a 5 to 2 majority seeking to avoid taking that historic action.

Mayor Davis indicated before the vote that he had spoken to both Wiggins and Evans about the probable vote, and received assurances they would try to get help for the city from Sacramento.

Davis said that he had "turned over every rock he could find to find a solution" but none came and there is no longer an ability for the city to pay its debts.

Council woman Joanne Schivley, who had supported bankruptcy two months ago, called for unity, and said the council and residents need to work together. Councilwoman Stephanie Gomes completed the seven-member roll call.

Vallejo has been slammed by increasing costs of its public safety contracts, the housing crisis, lower property values and state raids on local coffers.

The city faces a $16 million deficit in the 2008-09 fiscal year which starts July 1. Tuesday night's dramatic vote came after months of fruitless talks between city and labor representatives.

After those talks, which continued through the weekend failed to produce a long-range fiscal plan, Vallejo's top administrators recommended bankruptcy as the only option remaining.

Chapter 9 bankruptcy will allow the city to gain temporary protection from creditors and enable the city to continue to offer citizens necessary services.

Tuesday night's dramatic vote came despite a last-minute appeal by state Sen. Pat Wiggins, D-Santa Rosa, and an aide for Assemblywoman Noreen Evans for the city to avoid bankruptcy.

Four council members Michael Wilson, Tom Bartee, Hermie Sunga and Erin Hannigan joined Mayor Osby Davis in switching in favor of filing for bankruptcy. In the past they had been part of a 5 to 2 majority seeking to avoid taking that historic action.

Mayor Davis indicated before the vote that he had spoken to both Wiggins and Evans about the probable vote, and received assurances they would try to get help for the city from Sacramento.

Davis said that he had "turned over every rock he could find to find a solution" but none came and there is no longer an ability for the city to pay its debts.

Council woman Joanne Schivley, who had supported bankruptcy two months ago, called for unity, and said the council and residents need to work together. Councilwoman Stephanie Gomes completed the seven-member roll call.

Bankruptcy will not provide the city with cash to solve immediate budget problems, but does offer a respite from current obligations to devise a financial plan.

The bankruptcy process would cost between $750,000 to $2 million just in legal fees, city officials said.

Those supporting the bankruptcy option say the city had no recourse left but to rework expensive labor contracts and forge a budget Vallejo can afford.

However, many others said the city should do all it can to avoid filing for bankruptcy to avoid hurting Vallejo's credit rating, image and ability to attract businesses.

Realtor and former Chamber of Commerce chairwoman Verna Mustico warned the council that if the city files for bankruptcy it could make the current housing crisis worse.

But numerous residents agreed with the city manager's office that at the end of the fiscal year, Vallejo will run out of money and had no other option but Chapter 9 protection. The city faces a $16 million deficit in the 2008-09 fiscal year which starts July 1.

Top city officials say the city is quickly running out of money.

Just hours before it took the historic vote, the seven-member City Council met behind closed doors for nearly two hours to get the latest developments on labor negotiations.

Vallejo bankruptcy attorneys have recommended the city approve any bankruptcy filing at least a month before city coffers run dry, which could happen as early as June 30.

The council also met privately Monday night to talk about the mediator-led negotiations, a day after parties met in a last-ditch weekend effort. Those sessions, held over the past two months with independent mediator John Kagel, have, so far, not been fruitful.

City employee union attorney Alan Davis has said a union-hired financial expert has produced two documents contradicting the city's claims of an enormous deficit.

Davis vowed to release the documents if an agreement were not reached. However, the unions have been unwilling to produce the reports for public review.

But, shortly before Tuesday's meeting the three public employee unions called for the Legislature's Joint Audit Committee to review Vallejo's city finances.

Council members said such a review could take years.

For months, the city had sought concessions from public safety unions and from International Brotherhood of Electrical Workers (IBEW) union members to slash contract costs and come up with a plan to balance the budget through 2012.

Any attempts to make up the $16 million through budget reductions would likely result in "Draconian cuts" in services to police and fire services, planning, public works and community development, city officials said.

Even if enough cuts were made to make up the shortfall, the city would be unable to maintain a "minimally acceptable level of municipal services," a staff report says.

Gomes said Tuesday night that since the public safety unions had raised the issue of a financial report by the Harvey Rose accounting firm that disputed the city's fiscal crisis, there should be an open discussion about it.

Asst. City Manager Craig Whittom said that while he would not provide details about the Harvey Rose report, city officials disagree its assumptions and conclusions.

Sara Rohrs is a writer for the Contra Costa Times.




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