Economy hobbles Calif. town

In court papers, the unions contend that Vallejo is not bankrupt, that it still is paying bondholders and that it had $136 million in cash when it filed for bankruptcy. The filing, the unions allege, is a ploy to force the unions to renegotiate their contracts.

Harvey M. Rose Associates, a San Francisco accounting firm hired by the unions, states in a court filing that Vallejo could balance its budget and build a surplus of millions of dollars by slashing costs, selling city land and increasing fees and assessments.

Unlike similar nearby towns, such as Richmond, that boast more diverse and thriving economies, Vallejo did not rejuvenate its economy and tax base enough to ward off financial woes, says Dean Gloster, an attorney at Farella Braun & Martel, who represents the unions.

"The truth is that Vallejo has been in serious financial trouble for over a decade," he says. "It's a very poorly managed city."

Vallejo officials say in court filings that the mortgage meltdown and high labor salaries and benefits, rising to $79 million in the current fiscal year, have forced the city to file for bankruptcy. The city, they argue, cannot balance its budget unless the unions make concessions.

Marc Levinson, a lawyer at Orrick Herrington & Sutcliffe, who represents Vallejo, denies that the city is sitting on $136 million in cash and assets, or that Vallejo "deliberately manufactured bankruptcy to break its labor contracts." He contends that the Rose report is flawed.

Says Levinson, "The city can't afford to pay the contracts. The city has cut to the bone. There is nowhere else to go."

A tough fight ahead

If similar bankruptcy cases are any indication, the unions face a tough legal fight, according to Bruce Bennett, an attorney at Hennigan Bennett & Dorman, who worked on the Orange County bankruptcy and is not involved in Vallejo's case.

"There were extensive negotiations prior to the case," says Bennett, who read the key bankruptcy filings, "and it does not appear the city has misrepresented its actual, current financial condition."

Beyond the filing, Vallejo's economy — mostly retailing, business services and manufacturing — could get a boost from development projects and a $300 million cancer research center planned by Touro Universityon Mare Island.

Back on Tennessee Street, the quiet main road from the highway to Mare Island, contractor Golovich waves at friends and business people driving by. The economy, he believes, will start rumbling soon.

"This street is going to be booming again, I'm certain of it," he says. "You can see the traffic picking up now."

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