The city of Vallejo, located about thirty miles northeast of San Francisco, filed for bankruptcy protection Friday. The city faces a $16 million deficit in its fiscal year starting July 1st, caused by increasing employee costs and declining tax revenue.
The City Council voted to seek bankruptcy protection on May 6th after negotiations with its police and firefighter unions failed. Vallejo's finances have come under pressure from the foreclosure crisis and the current economic downturn as revenues from sales tax, property tax and development fees have declined sharply.
Most residents and officials blame the high salaries and benefits of the city's police force and firefighters for the current economic crisis.This is denied by the police and fire fighter unions who claim their emoluments are in line with other Bay Area cities. They claim the financial crunch is due to financial mismanagement by successive city councils.
Vallejo is the largest California city to file for bankruptcy protection, and the first to do so because expenses exceed income. Earlier in 1994, Orange County filed for bankruptcy protection because it lost money in bad investments, and in 2001 Desert Hot Springs filed after losing a lawsuit.
A June 9th deadline is to be set for creditors to challenge the filing. If there are no objections, the city automatically enters bankruptcy protection.