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Lessons of hard times in Vallejo

A Bay Area bedroom community's struggles with bankruptcy are closely watched by other cities grappling with their own woes.

May 26, 2010|By Maria L. La Ganga, Los Angeles Times

Reporting from Vallejo, Calif. — First came the break-in at the combination electronics repair shop and real estate agency. Then came the burglar bars on the store's plate-glass window.

But Jimmy Mozaffar, owner of Data Days, sounds less angry with the criminals than he does with the crime-stoppers here in hard-knock Vallejo, the largest city in California history to file for bankruptcy.

The thieves made off with laptops, but it was the pared-down Police Department — which has lost a third of its officers — that stole Mozaffar's peace of mind. When Mozaffar called the department to report the burglary last fall, a recording directed him to a website.

"Nobody came out," he said. "They said they'd deal with it."

Since filing for Chapter 9 bankruptcy protection two years ago, this scrappy Bay Area bedroom community has come to symbolize the fiscal troubles — now faced by many cities — that helped push it to the brink: unrestrained spending, out-of-control pension costs and a burst housing bubble.

"I don't think other cities look at us with a jaundiced eye because we've filed bankruptcy," said Mayor Osby Davis. "Other cities … look at us and say, 'Wow, we're a step away from where you are. We just want to know, how are you getting through this?' "

The answer, so far, is not so well, although "the hardships visited on Vallejo residents are not because of the bankruptcy," said Marc Levinson, the city's lead bankruptcy attorney.

"The bankruptcy is an attempt to fix it," he continued. "If it hadn't been for the bankruptcy, the problem would have been worse. The city could not pay its bills."

Evidence of municipal misery is widespread. Foreclosed homes are sold in front of the Civic Center so often that City Hall is plastered with signs warning auctioneers not to conduct business at the lobby information desk or the monument to fallen firefighters and police officers.

Sixty percent of all borrowers in the Vallejo area owed more on their mortgages than their homes were worth in the first quarter of 2010, according to CoreLogic, compared with 24% of borrowers nationwide and 34% in California.

Property and sales tax revenue are expected to drop 18% and 10%, respectively, in the current fiscal year. The city's general fund has plummeted 20% in the last two years.

Trees go untrimmed, potholes unfilled. The economic development staff has been slashed to one. Even Wal-Mart has decamped from this city of 121,000. Vallejo has stopped funding senior centers and libraries.

"The unofficial civic motto used to be, 'Vallejo, come for the crack, stay for the hookers,' " joked writer David Corbett, who moved here in 1994 and sets some of his gritty novels in a real or imagined Vallejo. "Since bankruptcy, it's been changed to, 'Vallejo, where your hope comes to die.' "

Municipal bankruptcies are rare and drastic measures. California's largest and best-known was the 1994 Orange County filing, which was spurred by losses in the investment market. Desert Hot Springs also declared bankruptcy in December 2001 after an adverse court judgment.

In the current economic climate, however, talk of bankruptcy has become more commonplace. Former Mayor Richard Riordan recently co-wrote an opinion piece about Los Angeles for the Wall Street Journal predicting that "Between now and 2014 the city will likely declare bankruptcy."

Miguel A. Santana, the city administrative officer, rejected Riordan's contention, telling the City Council that deep spending cuts have put the city "on our way to financial stability."

Nearly 20 years ago, the Vallejo City Council appointed a citizens committee to review the municipal finances, which were tottering even then.

J.D. Miller, a certified public accountant who served on the committee, remembers standing in front of a whiteboard on which he had drawn a simple graph. A steeply climbing line showed expenses — entirely labor costs. A flatter one showed revenue. The two were set to intersect in 1994.

"The contracts they had with all of their employee groups in 1993 were unsustainable. That's why the two lines collided," Miller said, adding that the City Council "continued to give raises and benefits."

Although the council did begin cutting costs, Vallejo ran through its reserves and sought bankruptcy protection in May 2008.

Three of its four unions objected to the filing, but a federal judge ruled that the city was insolvent and eligible for bankruptcy.

Vallejo officials have reached new contracts with all but the International Brotherhood of Electrical Workers Local 2376, which represents about 240 city employees. Arbitration with the IBEW began this month.

Salary increases were eliminated for firefighters and management workers. The city had not paid police officers past salary increases; the union agreed not to demand repayment. Vallejo imposed lower interest payments to bondholders and missed three interest payments entirely.

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