The City of Vallejo, CA has just declared bankruptcy. I wrote about this earlier, because bankruptcy was already forecasted due to the excessive union contract benefits the city agreed to. Primarily, during the recent economy upturn, the city was pushed by the Unions into increasing pension payments by 50% (from 2% to 3% of annual wages) and now can't pay their other bills.
As we also mentioned before, Orange County, CA could be next because they agreed to the same high increases in pensions for Sheriff employees.
You could look at this as a lesson learned for politicians who cave to unions for increased wages or benefits not sustained by NORMAL tax revenues. Read the original AP article below in the link.
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Link: Los Angeles Times: Vallejo files for bankruptcy.
http://www.latimes.com/news/printedition/california/la-me-vallejo24-2008may24,0,6014552.story From the Los Angeles Times Vallejo files for bankruptcy The Bay Area city is unable to cope with a $17-million shortfall, and services could be reduced as a result. By Jason Song Los Angeles Times Staff Writer
May 24, 2008
The city of Vallejo filed for bankruptcy protection today after administrators and leaders were unable to sufficiently trim a nearly $17-million shortfall.
The Bay Area city, with a population of about 120,000, had been bracing for the possibility since February as tax revenues fell and employee costs remained high. Eighty percent of the city's budget goes to police and firefighters, far above the norm for most California cities.
"I had hoped that even at the 11th hour and 59th minute we could come up with an alternative," Vallejo Mayor Osby Davis said.
It appears that Vallejo negotiated contracts with employees that were too burdensome when the economy slowed down, said Juliet Musso, an associate professor of public policy and political science at USC.
"It's a continuation of the story of bust-and-boom cycles in California," she said.
Davis said that two redevelopment projects are in doubt because of the financial straits, and he worried about the city's ability to borrow money in the future. "If we have anyone who is going lend us credit, it's going to be at a higher premium."
Union officials, who could not be reached for comment, have said in the past that the contracts are fair and blame government mismanagement for the current crisis.
Vallejo is the second California city to recently file bankruptcy papers, Musso said. Desert Hot Springs in Riverside County filed for bankruptcy in 2001 after losing a lawsuit. Orange County declared insolvency in 1994 because of bad investments.
Today's filing will let Vallejo renegotiate its debt but could lead to reduced services, including police response time.
