Vallejo Faces Debts of $17 Million in Bankruptcy

As expected, Vallejo, Calif., filed for bankruptcy Friday. The city council had approved the action earlier this month ("Vallejo, Calif. Files for Bankruptcy," May 8).

The filing, with the U.S. Bankruptcy Court, Eastern District of California, claims that the municipality “has negotiated in good faith with creditors,” but “these efforts resulted in short-term concessions, but failed to achieve long-term solvency.”

The filing goes on to say that “additional funding reductions beyond the cuts the city has already made threatens the city’s ability to provide even minimum levels of service to its residents, and, at some point, may create significant health and safety risks.”

Vallejo had been seeking concessions from municipal workers, but the union’s offer of $10.6 million in reductions was considered insufficient, according to a report in The Bond Buyer.

The city expects to be $17 million in debt for its upcoming fiscal year, which starts July 1.

Vallejo is the first local government in California to seek bankruptcy protection since Desert Hot Springs in 2001, following a $6 million judgment against the municipality.

Published reports say that Vallejo’s Chapter 9 bankruptcy filing would cost the city $750,000 to $2 million in legal fees, but would enable the city to continue to offer necessary services while receiving temporary protection from creditors.