Financially ailing Vallejo files bankruptcy

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(05-23) 11:32 PDT Vallejo - --
Vallejo officially declared bankruptcy on Friday, when the city's lawyers filed for Chapter 9 bankruptcy protection for the financially troubled North Bay city.

The petition, filed in U.S. Bankruptcy Court in Sacramento, come ups two hebdomads after the City Council voted unanimously to come in bankruptcy after calendar months of cost-cutting and labour dialogues failed to salvage the metropolis from fiscal ruin.

The metropolis confronts a $16 million shortage with no money in modesty for financial twelvemonth 2008-09, which begins July 1. A bankruptcy justice will be assigned to the lawsuit in the approaching days.

Officials in metropolises and counties in Golden State and across the state are expected to watch Vallejo's lawsuit closely, former federal bankruptcy Judge Lisa Fenning said Friday.

"Chapter 9 bankruptcy is very uncommon," said Fenning, a former bankruptcy justice in Los Angeles. "Many municipalities are facing heavy wage and pension committednesses which they might not have got grosses to support. This volition be precedent-setting because it hasn't been the topic of much litigation."

Vallejo is the biggest metropolis in Golden State to declare bankruptcy, and the lone 1 to make so because of long-term economical problems. The metropolis of 117,000 have been hit difficult by the weak lodging marketplace and rising public employee wages and benefits.

The metropolis will owe its police, fire and other labor union members $79.4 million in 2008-09, but will have got only $77.9 million in its general fund, according to the bankruptcy filing.

"The general monetary fund endures from a cardinal structural instability where outgoes substantially transcend revenues," the filing says. "Given the magnitude of its duties under the (contracts), given the already deep cuts made to basic services provided its residents, and given other non-labor costs, the metropolis cannot rebalance full general monetary fund outgoes without restructuring its labour costs."

By declaring bankruptcy, the metropolis trusts to reorganise its debts and restructure its budget, including the costs of its police force and fire contracts. Union leadership have got said the metropolis is not insolvent, but is using bankruptcy as a manner to trash its labour contracts.

There's a good opportunity the justice will let Vallejo to rewrite its labor union contracts, said Fenning.

"Chapter 9 doesn't necessarily end the contracts, but it intends the debtor (the metropolis of Vallejo) can enforce footing and statuses for wages and benefits unilaterally," she said. "Vallejo now have the upper manus to coerce footing with regard to its corporate bargaining agreements."

The metropolis is likely to enforce the footing of its last offering to the unions, Fenning said. But labor union leadership program to inquire the justice to disregard the case, claiming the metropolis have money in other finances and can increase grosses by raising taxations and fees.

"Filing bankruptcy is and was unnecessary," said Mat Mustard, frailty president of the Vallejo police force union. "We believe the metropolis have a batch of other options which would protect the taxpayers as well as employees."

That's a longshot, Fenning said.

"The justice will hear testimony and may reason the labor unions are right and disregard the case," she said. "But that looks far-fetched at this point, considering how long dialogues have got got gone on."

The labor unions have already made more than than $10 million in grants since 2002-03, Mustard said.

"For me personally, that's meant giving back $30,000," he said.

The labor unions commissioned an audited account of metropolis finances by the William Harvey Rose auditing house of San Francisco, which concluded that the metropolis can cut costs and bring forth gross without slicing into police force and fire salaries.

City functionaries and the labor unions have got been negotiating for about two years. To ran into its payroll, the metropolis have cut support to senior centers, libraries, museums, public plant and other amenities.

Meanwhile, The History reported Thursday that metropolis functionaries are also discussing a refinancing program with moneyman Melvin Calvin Grigsby of San Francisco, whose house pulls off millions of dollars in chemical bonds for authorities throughout the nation, including respective chemical bond trades in California.

Grigsby's partner, Henry Martin Robert Ceresa, said the program could be an option to bankruptcy and would be contingent on additional cuts to wages and benefits paid to metropolis police force military officers and firefighters, whose compensation amounts to three-quarters of the city's general fund.