Vallejo, California: Bankruptcy Is Over
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Vallejo, California: Bankruptcy Is Over

November 18, 2011


The town of Vallejo, California, has exited the protection of the bankruptcy court, according to the San Francisco Chronicle. The declaration ends a three-year bankruptcy that drew Vallejo into the national spotlight as one of the largest municipalities to seek bankruptcy protection.

The city filed its Chapter 9 bankruptcy case in May 2008, as a way to cope with insufficient cash reserves, significant debts, expensive contracts with public employees, and decreasing revenue from taxes. The bankruptcy granted Vallejo both protection from creditors (similar to the protection that individual bankruptcy filers enjoy) and a chance to renegotiate costly contracts.

It seems that some of its reorganization measures have already borne fruit. A new Toys R Us store has reportedly opened within city limits, and a prefabricated home manufacturer plans to build a plant in the coming months.

Higher Sales Tax, Lower Pensions

Among the provisions that allowed Vallejo to exit the bankruptcy court were revisions that require city council members to pay more for their health insurance, changes that eliminate minimum staffing requirements for the fire department, and changes to the pension system for firefighters.

The city has also reportedly looked to increase its revenue. A ballot initiative set to go out this week includes a request for a one-cent increase to the city’s sales tax, as well as a tax on medical marijuana purchases.

Most city insiders seem relieved that their bankruptcy court ordeal is over. While it was officially in bankruptcy, the city’s real estate agents were required to disclose as much to potential homebuyers and the place became nationally infamous for its bankrupt status.

Now, of course, Vallejo is just one of many cities and municipalities that have sought or considered Chapter 9 bankruptcy protection since the economic downturn began in 2008. Most recently, Pennsylvania’s capital city, Harrisburg, has filed a petition for bankruptcy protection.

Some members of Pennsylvania government have challenged that petition’s legality, though, and a judge will hear arguments in the matter later this month. Jefferson County, Alabama, also considered bankruptcy in recent months, but ultimately avoided filing when it came to a debt agreement with creditors.

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