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Vallejo, Calif., Goes Bankrupt

Jobs and senior services are being cut to the bone

The Mare Island Naval Shipyard, which built ships and submarines in World War II, was for decades the city's economic engine. In its heyday, the base employed 46,000 people, who spent their wages in local stores and restaurants. The rolls of city employees expanded.

The shipyard was closed in 1996, but the housing boom in the 2000s helped keep the local economy going. On the Vallejo highlands along Interstate 80, which connects Sacramento with San Francisco, acres of gleaming new subdivisions went up. Gays gentrified an area closer to downtown.

But then the recession and the housing crisis hit. Though parts of Vallejo retained an all-American allure, in others the picture turned gloomy. Construction stopped, Walmart left town, property tax revenues took a dive. With expensive labor contracts to fund, Vallejo found itself with a budget that didn't add up.

City leaders couldn't summon the political will to boost taxes in the middle of a slowdown. And when the gaps proved too big to close with conventional steps, Vallejo opted for the radical: In May 2008 it filed for protection in U.S. bankruptcy court.

Municipal bankruptcy remains quite rare across America. In the more than 60 years since Congress established a federal mechanism for the resolution of excessive municipal debts, only about 600 cities have filed for protection from their creditors.

Vallejo officials entered a protracted court battle with unions in an ultimately successful battle to reduce city workers' wages. The city burned through more than $8.3 million in payments to lawyers, court records show. The bad news has continued. In a court filing in January, Vallejo's lawyers noted that the city's unfunded pension liabilities totaled $195 million while overall revenues from property and sales taxes had dropped from $83 million to $65 million since 2008.

The city has outlined a five-year recovery plan. It has agreed not to disrupt pensions for former city employees but has cut payments for accrued sick leave or unused vacation time.

Jobs and services are being cut to the bone. With only a handful of police officers now working the street, Vallejo has gained a reputation as a good place for criminals to set up shop, some residents say.

In light of lengthy legal battles and the economic collapse, employees should have seen the writing on the wall, says fire chief Doug Robertson, 51. "We were overblown. Salaries, benefits, the whole thing." His department, which once had 122 members, now has 65. Three of nine firehouses have been permanently closed. Firefighters took a 25 percent pay cut and must do more work with fewer resources.

As a police siren wails in a downtown neighborhood on a recent day, credit union employee Alain Norris, 37, says that given the economic collapse around him, he's been lucky just to have a job. But for now, he says, "really, the only thing I like about this place is the weather."

Michael Zielenziger writes on business and the economy. He lives in the San Francisco Bay area.

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