More California Towns Face Bankruptcy

[question everything]

DECEMBER 18, 2008

More California Towns Face Bankruptcy
By BOBBY WHITE
WSJ

RIO VISTA, Calif. -- California may soon have more bankrupt towns on its hands. The city of Vallejo, Calif., gained national attention earlier this year by filing for Chapter 9 bankruptcy protection. Now, two neighbors are fighting to avoid the same fate, as the state's economic crisis spreads. Isleton and Rio Vista, small towns roughly 50 miles northeast of San Francisco, say they have begun consulting with bankruptcy lawyers as they draw up plans to deal with their mounting budget crises. The towns' leaders say they hope to avoid bankruptcy, but concede the move may eventually be their only option. "We're strapped for cash and by the end of March or early April we may not have enough money to pay for payroll," says Hector De La Rosa, Rio Vista's city manager.

California's troubled towns can't expect much help from the state. A state board voted Wednesday to shut off $3.8 billion in financing to hundreds of infrastructure projects to preserve cash, as the nation's most populous state struggles under a budget deficit that officials say could balloon to more than $40 billion over the next two years. "California's fiscal house is burning down," State Treasurer Bill Lockyer said in a statement.

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California also makes it hard for municipalities to quickly raise taxes to cover shortfalls: In most instances, state law requires them to place increases in utility rates and taxes before voters for their approval. Rio Vista began to see the trouble last year, when property-tax revenue began to falter. The city lacks revenue sources such as big-box retailers and depends heavily on two auto dealerships for sales-tax revenue, Mr. De La Rosa says. But the dealerships have hit hard times. Rio Vista has cut a third of its city workers and slashed its recreation budget to $29,000 from about $250,000. The city is looking into selling more than 100 acres of its land for revenue. Since July 2007, Rio Vista has cut $1 million from its $7 million budget but still faces an $800,000 shortfall. "The fact we are a small town makes it more difficult to handle this slide we are on," says Rio Vista Mayor Jan Vick. "We don't have that much to cut."

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The state's Pooled Money Investment Board Wednesday halted the flow of money to highway, prison and schools projects, among others, until June, so the state can pay for public safety, health care and other crucial services for as long as Sacramento lawmakers remain stalemated over how to close the budget gap. Ms. O'Malley says that distressed cities could turn to county governments to take over some services. But with many counties also hurting financially, that option is limited. Another option: Cities could dissolve themselves, she says. But dissolution also involves county officials taking over city services and orchestrating a recovery, and lenders would still be left holding the bag for debts.

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http://online.wsj.com/article/SB122954346309915189.html (subscription)

[pinto]

1. The state's budget is a disaster. Our little county lost a few million in planned

school/infrastructure improvements.

(ed for spell)

[question everything]

2. The problem with California is that voters readily approve various bonds

and dedicated projects, never stopping to think how these project would be funded. Then there is Prop. 13 that pretty much destroyed the basis for municipal budgets.

[pinto]

3. Agree. Prop 13 was a killer.