Vallejo, facing big deficit, files for bankruptcy

The San Francisco Chronicle reports:

The city of Valley officially entered bankruptcy today, when City Manager Joe Tanner filed papers declaring Chapter 9 bankruptcy for the financially troubled North Bay city.

The petition, filed in U.S. Bankruptcy Court in San Francisco, comes two weeks after the City Council voted unanimously to declare bankruptcy after months of cost-cutting and labor negotiations failed to save the city from financial ruin.

The city faces a $16 million deficit with no money in reserve for fiscal year 2008-09, which starts July 1.

Vallejo is the largest city in California to declare bankruptcy, and the only one to do so because of long-term economic problems. The 117,000-resident city has been hit hard by the weak housing market and rising public employee salaries.

By declaring bankruptcy, the city hopes to re-organize its debts and restructure its budget, including, possibly, its police and fire contracts. Union leaders have said the city is not insolvent, but is using bankruptcy as a way to get out of its labor contracts.

Meanwhile, The Chronicle reported Thursday that city officials are also discussing a refinancing plan with financier Calvin Grigsby of San Francisco, whose firm manages billions of dollars in bonds for governments throughout the nation, including several bond deals in California.

Grigsby's partner, Robert Ceresa, said the plan could be an alternative to bankruptcy and would be contingent on further cuts to salaries and benefits paid to city police officers and firefighters, whose compensation amounts to three-quarters of the city's general fund.