Vallejo Seeks June 9 Deadline for Creditors to Step Forward

The city of Vallejo, Calif., on Thursday had the first hearing on its bankruptcy filing in the U.S. Bankruptcy Court, Eastern District of California before Chief Judge Michael S. McManus.

At the hearing, the city sought to establish a June 9 deadline for creditors to object to the case, according to the city’s filing. 

The bankruptcy filing claims that the municipality “has negotiated in good faith with creditors,” and “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 published reports, which the city says will result in a $17 million deficit for its upcoming fiscal year starting July 1. (“Vallejo Faces Debts of $17 Million in Bankruptcy,” May 27).

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

According to The Bond Buyer, if Vallejo is successful in its bankruptcy case, it could prompt other struggling municipalities to follow suit.

Earlier reports say that the Chapter 9 bankruptcy 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.