When Your City Goes Bankrupt..

Reporting from Vallejo, Calif.

First came the break-in at the combination electronics repair shop and real estate agency. Then came the burglar bars on the store's plate-glass window.

But Jimmy Mozaffar, owner of Data Days, sounds less angry with the criminals than he does with the crime-stoppers here in hard-knock Vallejo, the largest city in California history to file for bankruptcy.

The thieves made off with laptops, but it was the pared-down Police Department — which has lost a third of its officers — that stole Mozaffar's peace of mind. When Mozaffar called the department to report the burglary last fall, a recording directed him to a website.
"Nobody came out," he said. "They said they'd deal with it."

Since filing for Chapter 9 bankruptcy protection two years ago, this scrappy Bay Area bedroom community has come to symbolize the fiscal troubles — now faced by many cities — that helped push it to the brink: unrestrained spending, out-of-control pension costs and a burst housing bubble.

"I don't think other cities look at us with a jaundiced eye because we've filed bankruptcy," said Mayor Osby Davis. "Other cities … look at us and say, 'Wow, we're a step away from where you are. We just want to know, how are you getting through this?' "

The answer, so far, is not so well, although "the hardships visited on Vallejo residents are not because of the bankruptcy," said Marc Levinson, the city's lead bankruptcy attorney.
"The bankruptcy is an attempt to fix it," he continued. "If it hadn't been for the bankruptcy, the problem would have been worse. The city could not pay its bills."

Evidence of municipal misery is widespread. Foreclosed homes are sold in front of the Civic Center so often that City Hall is plastered with signs warning auctioneers not to conduct business at the lobby information desk or the monument to fallen firefighters and police officers.

Sixty percent of all borrowers in the Vallejo area owed more on their mortgages than their homes were worth in the first quarter of 2010, according to CoreLogic, compared with 24% of borrowers nationwide and 34% in California.

Property and sales tax revenue are expected to drop 18% and 10%, respectively, in the current fiscal year. The city's general fund has plummeted 20% in the last two years.

Trees go untrimmed, potholes unfilled. The economic development staff has been slashed to one. Even Wal-Mart has decamped from this city of 121,000. Vallejo has stopped funding senior centers and libraries. More Here..