Vallejo Bankrupt

The city of Vallejo, in Northern California, will declare bankruptcy sometime in the next few days. Why?

Vallejo has a declining industrial base. That’s not a surprise—all of California has that problem. Companies that can move do (or don’t add to their existing facilities in California).

Vallejo had a huge employer—the Navy. However, the Navy left Vallejo several years ago and no one replaced them.

Vallejo (and many other cities in California) have huge labor costs for public employees. The public employee unions wouldn’t accept the cuts that the city asked. It’s certain that during bankruptcy that the city will ask for the contracts to abrogated.

Is Vallejo a harbinger of what impacts all of California? For some cities, perhaps. Cities in California that are dependent on a single employer, and have high fixed costs need to be watchful. It will be interesting how this plays out with the background of California’s huge budget deficit playing out.

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