Oakland councilmember Ignacio De La Fuente says bankruptcy protection is not being ruled out.
"I think it is a possibility for a lot of cities. I think we are in probably the worst financial situation I have ever seen," said De La Fuente.
"I think it would be the very last thing we would do. I think we would lay off police officers, which no one wants, the public doesn't want, the council doesn't what, the mayor doesn't. I think we would go out for a voter initiative ballot before we would go bankrupt," said Oakland City Council President Jane Brunner.
Oakland faces drastic cuts and there are proposals to increase revenue like raising the price of parking tickets and increasing the hotel tax.
Mayor Ron Dellums is in Washington trying to get more stimulus money and the city is negotiating with the unions. Most of Oakland's budget, about 85 percent, goes toward paying city workers.
"All the unions, all the city employees need to understand that there is no way to do this without understanding that these are different times, difficult times," said De La Fuente.
A year ago Vallejo filed for bankruptcy protection. The city was then entitled to change all labor contracts. But now there is an assembly bill that would prevent that.
If the bill passes, the California Debt and Investment Advisory Committee would have the right to limit or even prohibit changes to labor contracts. Assembly Bill 155 is backed by several unions.
"I think it's a good idea to put it out there and then you have to work out the detail on how to stabilize the city," said Andre Spearman from SEIU Local 1021.
Oakland's council president says that would be a problem because most of their budget is spent on union employees.
"Then you couldn't go bankrupt, then you just would have to lay people off," said Brunner.
The council is expected to have a budget in place by June 30th.