Vallejo Finally Emerging From Bankruptcy
VALLEJO, Calif. (AP) -- City Councilwoman Marti Brown was euphoric when she learned this historic Northern California town had received federal court approval for its plan to emerge from bankruptcy. For three years it has had the dubious distinction of being among the nation's largest bankrupt burgs.
"The first thing I said was `Yeehaw!,"' Brown said. "It feels good to finally take off these shackles. We finally get to look ahead to the future."
Vallejo, the original capital of California, was once a thriving naval center on San Pablo Bay, about 30 miles northeast of San Francisco. But in 2008, this diverse working-class city of about 116,000 was faced with tens of millions of dollars in debt and filed for Chapter 9 bankruptcy protection.
Funds for paying benefits to current and retired city workers dried up; both the police and fire departments shrank by more than 40 percent; about 60 percent of city homeowners tanked on their mortgages, and storefronts went vacant. Unemployment spiked to 15 percent.
Last month, a federal judge approved Vallejo's $50 million debt-restructuring plan, which included lower interest payments to creditors, leaner employee contracts and reduced benefits to retirees, who now must pay more for their health plans.
Vallejo City Manager Phil Batchelor said that although the city survived an ordeal, fiscal discipline must be closely observed. The city recently passed a $65 million budget for a second straight year, down from previous budgets as high as $83 million.
"This hasn't been easy for anyone, but we're stable. We're sustainable," said Batchelor, who has assisted other Northern California cities and counties with fiscal problems. "We have to stick to our plan. There is no wiggle room."
While Vallejo has emerged from bankruptcy, other locales across the country are still in fiscal crisis.
Earlier this month, cash-strapped Central Falls, R.I., a city of 19,000 about north of Providence, filed Chapter 9, citing $80 million in unfunded pension and benefits obligations and deficits of $5 million or more projected over the next five years.
And officials in Jefferson County, Ala., where Birmingham is located, are pondering whether to take a similar route to offset a $3.14 billion debt mostly tied in bonds for a new sewer system. Harrisburg, Pa., also has also been flirting with Chapter 9.
Like many other municipalities, Vallejo allowed employees to accrue sick leave and vacation time with the promise that it could be cashed in at retirement. But the recession stripped the city's tax base, and employee unions rejected wage concessions.
Vallejo then filed for bankruptcy.
"No one likes to break a promise that they've already made through contracts previously executed," said Mayor Osby Davis, recalling the tough decision.
Davis said city leaders had feared potential bankruptcy since the early 1990s, even before the U.S. Navy decommissioned Mare Island, the first naval base and shipyard on the West Coast.
A city-appointed panel of financial experts projected that the city could be bankrupt by 2010. But Davis said the city council took no action.
"They took that report, put it in the drawer and never did anything with it. Not one thing," he said. "Had we dealt with it at that time, we would've never found ourselves in bankruptcy."
The bankruptcy filing in 2008 led Vallejo to cut its police and fire departments, closing three of its eight fire stations.
The move generated national headlines, stigma and a lot of anxiety, recalled Robert McConnell, a bankruptcy lawyer who ran city-sponsored seminars to alleviate citizen concerns.
"There was a lot of fear that city employees wouldn't get paid and the city would crumble," said McConnell, currently running for city council. "As you see, we managed to survive."
Police Chief Robert Nichelini, who has worked for five mayors and 14 city managers here, said "We're all doing more with less. I'm anxious to see where we will be in five years from now."
The city plans to use $4.7 in new grant money to hire more police officers and firefighters, Nichelini said. Two rehired police officers are back to work and another will start next month -- which the chief said will help the department fight prostitution, drugs and other quality of life crimes.
With new firefighters, one shuttered fire houses will reopen, Davis said.
With a new economic development director on board, the mayor hopes to convert vacated space on Mare Island into a hub of green technology, manufacturing and research.
Vallejo's also hopes to become more than a pit stop en route to Napa and the rest of the wine region.
"We certainly can be a gateway to Napa, but Vallejo has great bone structure to be a destination in itself," said councilwoman Brown. "If you build on your own assets, then you have more control over your own future."
Business owners such as LaVonne Sallee, an artist who has a Barbie-themed art gallery, hopes the city will improve the downtown, which is besieged with blight and empty storefronts.
"We all want Vallejo to get better. We really do," Sallee said. "It has to get better."
(Copyright 2011 by The Associated Press. All Rights Reserved.)
