by Calculated Risk on 2/27/2008 07:20:00 PM

From Bloomberg: California City Moves Closer to Bankruptcy Filing

Vallejo, a city of 135,000 outside of San Francisco, moved closer to bankruptcy after negotiations with its labor unions collapsed.

Bondholders will likely be asked to sacrifice some of their investment if the city seeks bankruptcy protection, an attorney for the municipality said last night. Vallejo faces ballooning labor costs and declining housing-related sales-tax revenue, leaving budget officials projecting that money will run out within weeks.

The city council is scheduled to consider a resolution tomorrow to file for Chapter 9 bankruptcy protection, after negotiations with labor unions to win salary concessions broke down Monday.

Many cities in California are struggling with falling revenue and rising pension costs. Vallejo is just the first in line.

``What happens in Vallejo is going to be the model for what happens across the state. It will have a big impact.''
[Clark Stamper of Stamper Capital & Investments]