Vallejo City (CA) declared bankruptcy

The New York Times (5/8, A24, McKinley) and Bloomberg (5/8, Marois) reports that Vallejo City, California, declared bankruptcy Tuesday, "to seek protection from creditors because it ran out of money to pay for basic services (Bloomberg)." The AP (5/7) added that city officials in Vallejo "hope, if a judge rules in their favor," that Chapter 9 bankruptcy protection will allow the city "to restructure union contracts and other debts in a way that allows the city to turn itself around."

Bloomberg notes that "cities and towns rarely go bankrupt. Since 1937, there have been 543 municipal [among a total of 80,000 or so] bankruptcies, two-thirds of which were small tax districts." The largest and most well-known case in US history was the the Orange County (CA) bankruptcy in 1994. Sajan George of Atlanta, who worked as consultant on the case before, noted that "is not a death knell, and should not be equated with that (AP)." After emerging from Chapter 9 protection, George said "Orange County is thriving."

Vallejo is the first California city facing effects of the recent housing downturn. However, "what worries some experts is that some of the problems" facing Vallejo "are all too common," including "a steep decrease in property and sales taxes and transfer fees, as a result of weakness in the housing market." Vallejo Councilwoman Joanne Schivley predicted that "there are a lot of other cities that [will] probably be in the same boat shortly (New York Times)."