SAN FRANCISCO - The city of Vallejo, California, filed for bankruptcy on Friday, a move signaled by its city council earlier this month as it struggles to avoid running out of money amid steep city personnel costs and sliding revenues from a housing slump.
The Chapter 9 filing by Vallejo, a blue-collar, former Navy town in the San Francisco Bay Area, in U.S. bankruptcy court in Sacramento had been expected since May 6, when the city council approved the drastic move.
"It is a sad day for the city and for me personally. It is not something I ever wanted to do," Vallejo Mayor Osby Davis told Reuters. "We did everything we could do to find other solutions and other alternatives, but we were not able to."
Vallejo, with more than 100,000 residents, is the first sizable city in California to file for bankruptcy. Chapter 9 is a bankruptcy filing for municipalities.
"Obviously, it has some far reaching ramifications as to our credit worthiness and being able to get into the credit," the mayor said.
Although many California towns are coping with shrinking tax revenue and some of the highest home foreclosure rates in the country, they are not likely to follow Vallejo's suit.
Moody's Investors Service said this month that Vallejo's expected bankruptcy filing would be a "unique case."
California's last governmental bankruptcy filing was in 1994 when Orange County's finances ran aground on soured investments linked to derivatives.
LEVERAGE WITH EMPLOYEES?
According to the filing signed by City Manager Joseph Tanner, the city has 1,000 to 5,000 creditors, estimated assets of half a billion to $1 billion and liabilities of $100 million to $500 million. Tanner had previously said the city's general fund would be depleted at the end of June.
Vallejo's main financial difficulty is high spending on public safety employees, whose costs eat up three-quarters of the city's general fund.
Although the city reached a deal with employees in February for pay cuts and other short-term measures to keep paying bills, the city council said earlier this month that filing for bankruptcy might give it more leverage in talks with workers on wages and benefits.
Mayor Davis said he hoped the city's creditors would eventually be paid in full, albeit over a long period of time. He also said he hoped the city would emerge from its financial woes more effective and better structured for cost savings.
A document accompanying the filing said the California Public Employees Retirement System, the largest U.S. pension fund, known as Calpers, held the largest unsecured claim, with $135.4 million in retiree health benefits, and another $83.9 million in unfunded pension plan benefits.
Wells Fargo Bank was a bond trustee with $27.3 million in unsecured claims, and Union Bank of California with $26.2 million in unsecured claims, the document said.
© 2017 Newsmax. All rights reserved.