May 27, 2008 4:49 PM

Vallejo Turns to Orrick for Bankruptcy Help

Posted by Zach Lowe

The city of Vallejo, Calif., turned to bankruptcy specialists at Orrick, Herrington & Sutcliffe for its Chapter 9 filing last week.

Vallejo, with nearly 120,000 residents, is California's largest city ever to file for bankruptcy protection. The city cannot fund its day-to-day operations because of high personnel costs and low tax revenue due to the housing market slump.

Orrick has worked with Vallejo before and has a well-known public finance group, says Marc Levinson, who filed the motion Friday.

Vallejo has run budget deficits totaling nearly $12 million over the last three years, and its general reserve fund will be empty by the middle of this year, Levinson’s filing says.

The city's biggest expense is labor, which totals about $75 million per year. Of that, $56.8 million goes to police and firefighters, the filing claims.

Vallejo held desperate and often rancorous negotiations with the public safety unions last year, in which the unions agreed to wage cuts so that the city could stay afloat. Some observers believe the bankruptcy filing will help the city in future negotiations for wage cuts, as Reuters reports.

The city owes nearly $136 million in payments to its employee pension fund, the largest of its unsecured claims, court filings show.

Its total liabilities may approach $500 million, court documents show.

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