Municipal Bankruptcy No Bargain

The Northern California city of Vallejo has emerged from bankruptcy after three years in the hole.

As with so many other California governments in peril, some see the bankruptcy process as a way for cities, counties and school districts to get out from under overly generous promises and obligations and contracts.

In Vallejo, they note that pensions and other benefits for public employees were reduced -- the sort of thing that is much more difficult without bankruptcy.

But the Vallejo experience shows that bankruptcy is a high price to pay for making such changes.


The San Francisco Chronicle reports this week that the city spent at least $8 million on legal fees. And there was all types of collateral damage -- to the business environment, to home prices, and the city's reputation.

The assistant city manager of Vallejo is quoted by the Chronicle as warning other California governments to avoid bankruptcy if at all possible.

"I'd only advise cities to go this route if they have no other options. The money spent on bankruptcy should be spent on providing services to residents."

If other cities and local governments follow that advice, that may be the best thing to come out of the Vallejo bankruptcy.

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