This, perhaps, is precisely the scenario Messrs Spitzer and Dinallo are hoping to avoid:
The city of Vallejo is on the brink of becoming the first California city ever to declare bankruptcy, City Council members said Tuesday.
Vallejo may run out of cash as early as March, council member Stephanie Gomes said.
To be precise, Vallejo, pop. 116,760 (last in the headlines Sep ’07: Giraffe dies in barn blaze) hasn’t reneged on its commitments due to the spike in funding costs plaguing the muni market, but that can’t have helped.
The city faces a $10m operating deficit for the current year, with $20m having to be cut from the 2008 budget if the situation is to get anywhere close to resolution.
Vallejo in its own way, is a subprime borrower. According to council member Stephanie Gomes:
This has been happening for quite a while. For 15 years the city council has been putting Band-Aids on the problem. (It has been) extending contracts and deferring payments for public safety to the next years as a way of balancing the current budget.
The question then, is how many other municipalities got hooked on cheap credit these last few years? With rates in the muni markets rocketing, perhaps it won’t be too long now before we find out.
(Hat Tip, Calculated Risk)