Vallejo, California, the biggest U.S. municipality in bankruptcy, doesn’t expect to have access to the credit market for five years as it restores its good name, a city official said.
The city has to establish a reputation for dealing with its budget problems, keeping its finances in balance and making sure it makes payments, David Millican, Vallejo’s senior adviser, said today in a City Hall news conference. The city has no plan to issue debt, Millican said.
“In order to rebuild your reputation to the point where credit agencies are going to look on you favorably and the market will look on you favorably again could take as long as five years,” Millican said, reflecting what he said officials were told by the city’s bond counsel and financial advisers.
The one-time U.S. Navy town of about 120,000 on San Francisco Bay sought protection from creditors under Chapter 9 of U.S. bankruptcy law in May 2008 after the recession eroded tax revenue and unions rejected wage cuts. In January, the city filed an exit plan in a Sacramento court.
“If we keep going the way we are now, we will begin to restore that credit worthiness in the minds of the rating agencies,” said Phil Batchelor, Vallejo’s city manager.
“Eventually we will again enter the marketplace,” Batchelor said. “Right now, we don’t want any more debt service. We can’t afford to pay it off.”
Batchelor said he expected the city to emerge from bankruptcy in the coming months, with a final meeting in the court on July 28.
No Job Cuts
Batchelor unveiled a $65.7 million general-fund budget proposal for the fiscal year beginning July 1 that he said the City Council will review at a June 14 hearing. The city isn’t anticipating job cuts, demotions, hiring freezes or cuts in service, Batchelor said.
“We’re not going to be able to convince the rating agencies that we are stable unless we’re able to show for several years that we have done a good job of budgeting, that our projections are accurate, that we’re paying our bills and paying them on time,” Batchelor said. “As we begin to do that, we’ll be able to restore our credit rating.”
The case is In re City of Vallejo, 08-26813, U.S. Bankruptcy Court, Eastern District of California (Sacramento).