| SAN FRANCISCO
SAN FRANCISCO Feb 21 Vallejo, California, a
former Navy town northeast of San Francisco, may file for
bankruptcy because its employee costs are rising too much as
its revenues slow, a City Council member said on Thursday.
Officials in the blue-collar town between San Francisco
and the state capital of Sacramento expect a $4 million budget
surplus to swing to a $6 million shortfall by the end of the
fiscal year in June. They anticipate that deficit to widen
more next year.
"As of April, we will not have the money to pay
employees," Vallejo Councilwoman Stephanie Gomes said in a
telephone interview. "It's just projected to get worse and
"If we can't get all the pieces to come together ... then
the city should declare bankruptcy," Gomes said.
Vallejo's revenues are down as California's economy
But Gomes said the city is most burdened by rising payroll
and retirement costs for its emergency personnel -- concerns
that many local governments share.
Vallejo officials are now threatening to slash spending
widely and follow the example of Desert Hot Springs,
California, which filed for bankruptcy in 2001.
That bankruptcy was overshadowed by the most dramatic
municipal bankruptcy in the United States -- Orange County,
California's mid-1990s meltdown after it lost at least $1.5
billion from bad investments.
"Bankruptcy has been talked about casually for about the
last year or so ... In December, it started to be looked at
seriously," Gomes said, noting the City Council could vote to
take the plunge next week.
They should think hard about that because the stigma of
bankruptcy is not easy to shake in the municipal debt market,
said James Spiotto, a municipal bankruptcy specialist at the
Chapman and Cutler law firm in Chicago.
"It isn't something to go into lightly ... People do keep
lists of who goes in," Spiotto said.
However, the threat of bankruptcy may force a compromise
with city employees that buys the city time to get its books
"To some degree, it's a good idea to bring people to the
edge of the cliff to look over to realize it's not a good idea
to jump and hope somebody catches you in mid-flight," Spiotto
Standard & Poor's Ratings Services on Thursday expressed
its concern by placing Vallejo's "A"-rated water revenue bonds
on "CreditWatch" status with negative implications.
(Reporting by Jim Christie; Editing by Jan Paschal)