Vallejo on the brink of bankruptcy

February 22, 2008 12:29:43 AM PST
In closed-door meetings all day and in a public hearing on Thursday, everyone is trying to figure out how not to become the first city in California to declare bankruptcy.

It is a serious situation. In fact, it's gotten to the point where the city of Vallejo could run out of money to pay its bills in less than two months. So on Thursday, two councilmen invited an overflow crowd of nearly 200 people to discuss some very tough options including raising the sales tax, raising the property tax and bankruptcy.

With the financial future of Vallejo in jeopardy, on Thursday, residents had a whole lot of questions.

"How is the city rated credit-wise and will bankruptcy change credit rates?" asked one Vallejo resident.

"The bankruptcy petition will impact the ability of the city to obtain financing," said Robert McConnel from the Vallejo Planning Commission.

They filled a local photography business for a crash course on chapter 9 bankruptcy -- one of the options on the table.

Vallejo's budget is already $6 million dollars in the hole, and that deficit could more than double over the next two years.

City officials blame an eroding tax base, brought on by the bad housing market, plus rising labor costs for the police and fire department.

"We need to tear up the existing contracts and write all new ones that are in better proportion to our general funds," said Joanne Schivley from the Vallejo City Council.

Pay cuts ? that is apparently what city officials were discussing with the police and firefighters union on Thursday night.

We found them after a five-hour private negotiating session.

ABC7's John Alston: "Are the unions considering giving back the pay increases?"

"I think there is discussions that are going well, so we are optimistic," said Interim Vallejo fire chief Russ Sherman.

"I have always been optimistic from the beginning. We are still working on it and we hope to work something," said Vallejo Mayor Osby Davis.

Other options to deal with the budget include closing some fire stations on a rotating basis, and even cutting maintenance and supplies for the local library.

"I am very disheartened, it's like cutting a lifeline to cut any function of the library," said Vallejo Patricia Maneri.

Thursday's meeting was a preview of Tuesday when the entire city council is expected to vote on whether to approve budget cuts or those pay cuts, or to vote in favor of filing for bankruptcy. That would allow the city to restructure its debt, but residents will probably see cuts and services, as well as some layoffs.