Cities Learn from Vallejo’s Bankruptcy

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In May 2008, the city of Vallejo (population 120,000) filed for Chapter 9 bankruptcy after failing in negotiations with unions over salary cuts coupled with much lower tax revenue due to the recession. Chapter 9 allows municipalities to reorganize their debt rather than liquidate their assets. Vallejo is the largest city in California and the second-largest local government after Orange County to file for bankruptcy.

Since 2008, the city has spent $9.5 million in legal fees with little to show for it. On November 30, the city council approved a five year budget that allows Vallejo to pay for $195 million in unfunded pension obligations. The budget also outlines plans to delay payments to bondholders, cut down employee benefits, allocates $5 million for unsecured creditors and creates a rainy-day fund. The city must also submit a bankruptcy-exit plan that includes the budget to a Sacramento court by January 18, 2011.

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Tampa Bay Bankruptcy Center, P.A. on:

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