I've held off on comenting about the Golden State for a few months. It's been a time of house prices grinding lower, corporate bankruptcies and layoffs, more talk of loading up debt to fuel budget shortfalls - but no major discrete events have jumped off the screen or come in via email.
That has changed. As I've mentioned before, I regard California as a key leading trendsetter, and here is a trend I expect to see a lot more of later this year. I still think we make it through June without terrible trauma, but I would suggest you have an economic Plan B and Plan C in place before fall.
Vallejo, California City Officials Vote to File for Bankruptcy
By Michael B. Marois
May 7 (Bloomberg) -- Vallejo, California's city council voted to go into bankruptcy, saying the city doesn't have enough money to pay its bills after talks with labor unions failed to win salary concessions from fire fighters and police.
The city council's unanimous decision makes the San Francisco suburb the largest city in California ever to file for bankruptcy and the first local government in the state to seek protection from creditors because it ran out of money amid the worst housing slump in the U.S. in 26 years.
The city of 117,000 is facing ballooning labor costs and declining housing-related tax revenue that have left it near insolvency. The city expects a $16 million deficit for the coming fiscal year that starts July 1. Under bankruptcy protection, city services would keep running. It would freeze all creditor claims while officials devise a plan for emerging from bankruptcy...
It will be interesting to see how the city and, in my opinion more importantly the unions, handle the cuts in bankruptcy. This could set a lot of trends for other cities in similar shape.