California city dodges bankruptcy bullet—for now

The Vallejo City Council approved three resolutions that should enable the city to avoid filing for bankruptcy by the end of the month. Council approved, by a 5-2 margin, a tentative agreement with its police and firefighters’ unions that includes concessions by the unions. At press time, the union members were scheduled to vote on the tentative agreement by March 7. The agreement applies to the labor contract that expires June 30.

The City Council also approved a fiscal emergency plan that will amend the city’s 2007-2008 budget. The blueprint calls for eliminating 38 positions, including 16 furloughs. The final vote on the emergency plan was scheduled for this week.
 
Vallejo had been facing a $6 million deficit in the current budget and a $14 million deficit in next year’s budget. Without council’s action, officials said the city treasury would be empty by the end of this month.

City manager: Plan has a 5 percent chance of success

The City Council gave its blessing to the emergency plan even though City Manager Joseph Tanner said he believed the plan has just a 5 percent chance of success. According to news reports, Tanner said that the plan was not a final solution, but that it will give the city four months to get its fiscal health in order.

The city faces a $13.2 million 2007-2008 general fund operating deficit and a negative funding balance of $9 million on June 30. The fiscal emergency plan and the concessions by the police and fire unions are expected to save $9 million.

Tanner also said that the city needs more revenue, and that voters may be asked to approve tax hikes in the November election.

Under the tentative agreement, firefighters and police will get a 2 percent raise between today and June 30. Changes in retirement payouts and minimum staffing levels also are part of the tentative pact. Half of the payouts for 20 police and firefighters who retired in February will be deferred until December, providing the city does not file for bankruptcy  

The public safety contracts, which expire in 2010, will be extended one year if the unions and the city can iron out a new agreement that addresses the city’s fiscal health by April 22. If there is no new agreement, the one-year contract extension will be canceled.  

If long-term contracts are not reached with Vallejo’s public safety unions by April 22, the City Council may have to consider a bankruptcy resolution in late April or early May.

Vallejo, which is about 23 miles from San Francisco, has a population of 116,844, according to the 2006 U.S. Census Bureau estimate.

What about other Golden State communities?

Kim Reuben, who is a senior research associate at the Urban Institute, told GovPro.com that more cities like Vallejo, “which has had large declines in home sales and prices, and increases in the number of foreclosures,” could face similar financial difficulties.

“There are a number of smaller cities in California that had seen large expansions in the housing stock that are experiencing fiscal distress,” Reuben said. “Besides Vallejo, these include Merced and Modesto.” 

Another group, the California State Association of Counties in Sacramento, Calif., is monitoring local government budgets. Jean Hurst, who is the legislative representative for revenue and taxation for the counties group, told GovPro.com that “it is unlikely that any California county will face bankruptcy in 2008.”

“It’s not clear to me,” Hurst added, “that even Vallejo will file for bankruptcy protection. Of course, this could all change once the state adopts its budget this summer.”

In mid-February, California Gov. Arnold Schwarzenegger signed a six-bill budget package designed to trim expenses in the state’s current fiscal year (fiscal 2007-2008). The package contains a variety of program cuts, payment deferrals and other strategies designed to reduce state cash outlays in the current fiscal year, and some budget savings in fiscal 2008-2009.

The package included fund shifts and budget cuts in education and state health programs. Additionally, a bill in the package delays the effective dates of cost of living increases for several social service programs.