Once bankrupt Vallejo, California ready to approve budget

SAN FRANCISCO, June 25 Tue Jun 25, 2013 8:21pm EDT

SAN FRANCISCO, June 25 (Reuters) - Vallejo, California's leaders are poised to approve the city's second budget since it emerged from bankruptcy by endorsing a $71.2 million general fund spending plan, City Manager Daniel Keen said on Tuesday.

To close a projected $5.2 million shortfall, the plan assumes savings from concessions from employees in ongoing labor negotiations, Keen told Reuters in a telephone interview ahead of the city council's budget vote on Tuesday night.

Keen said the budget would serve as "placeholder" until talks wrap up. He declined to detail concessions Vallejo is seeking, or contingency plans, but said the city needs to pare salaries and benefits to help balance its books beyond its next fiscal year.

"The numbers we're asking for are big," Keen said.

A former Navy town near San Francisco, Vallejo made national headlines in 2008 when it declared bankruptcy, becoming the biggest city in the most populous U.S. state to make that dramatic move to restructure its finances.

Vallejo exited from bankruptcy in 2011. Since then two larger California cities, Stockton and San Bernardino, have filed for bankruptcy, raising concerns about the stability of local finances in California.

Stockton and San Bernardino filed for bankruptcy last year. Stockton recently won court approval to draft a plan for adjusting its debt. The city aims to file the plan in September. Upcoming hearings in San Bernardino's case could determine if it also moves on to that critical phase of municipal bankruptcy.

While Vallejo's finances face some uncertainty as labor talks press on, the city's revenue outlook is gradually improving, Keen said.

Property tax revenue is seen rising 1 percent in the coming fiscal year and could pick up should the city's housing market strengthen. Sales tax revenue is projected to grow by 4 percent.

Despite the revenue gains, Vallejo's general fund budget will remain a "status quo" spending plan, Keen said.

Some services will see spending increases as Vallejo expects $11 million in new revenue in its next fiscal year from a voter-approved measure that increased the city sales tax by 1 percent.

Its proceeds are set aside for rebuilding reserves, hiring more police officers and firefighters, paving streets, economic development activities and for projects urged by city residents.

The increase went into effect in April 2012 and has so far funded five new positions for police officers.

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