The city council of Vallejo in California unanimously approved a financial plan late on Tuesday to exit its landmark bankruptcy, which the town declared two years ago in the face of mounting fiscal woes. Vallejo, a former Navy town located between San Francisco and the state capital of Sacramento, became the largest city in the most populous US state to declare bankruptcy - a rarity for US governments - amid slumping revenue and escalating costs for its work force.
Vallejo's bankruptcy garnered national attention and revived memories of Orange County, California seeking bankruptcy protection more than a decade earlier, which marked the biggest-ever US municipal bankruptcy. Vallejo's bankruptcy filing prompted some analysts to predict similar bankruptcies by local governments across California given the steep economic downturn in the state.
It spurred consumers to cut spending amid a tumbling housing market, hurting local US government revenues, which rely heavily on revenue from sales and property taxes. Vallejo's five-year plan tackles $195 million in unfunded pension obligations, creates a rainy-day fund, lowers benefits for new city workers and reduces payments toward retired employees' health care.
The plan may in coming weeks go before the judge hearing Vallejo's bankruptcy case, who will scrutinise its details, including how it proposes paying the city's bondholders, said Howard Cure, director of municipal research at Evercore Wealth Management. "There is a lot to prove," Cure said.
Mayor Osby Davis said he was hopeful the judge would accept the plan. "I see this as a stabilisation plan," Davis said. "We're doing the best we can with what we have." City Manager Phil Batchelor said the city of roughly 120,000 would face tight budgets under the plan, with barely enough money for the most essential of services.
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