Aug. 22 (Bloomberg) -- When Ruth Rooney moved in 2005 to a two-bedroom house in Vallejo, California, near Napa Valley’s famed wineries, the historic St. Vincent’s Hill neighborhood attracted young professionals and there were few vacancies.
Things began to change in 2008 after Vallejo, a city of about 116,000 that had lost its biggest employer, the U.S. Navy’s Mare Island shipyard, filed for bankruptcy, said Rooney, a 54-year-old marketing consultant.
“I see prostitutes, pimps and drug dealers out my front window,” Rooney said in a telephone interview Aug. 5. “There’s two on the corner right now.” Her property value has dropped 70 percent in six years, she said.
Vallejo’s experience comes as Central Falls, Rhode Island, proposes $5.6 million in budget cuts after seeking Chapter 9 protection this month and Jefferson County, Alabama, negotiates with creditors to avoid what would be the biggest government filing in U.S. history. There have been five municipal bankruptcies this year, compared with six in 2010, according to data compiled by Bloomberg.
Prostitution became a growth industry in Vallejo as the San Francisco Bay city slashed its payroll, cutting police by a third, to 90 from 134. The largest municipal bankruptcy in California since Orange County in 1994 has forced law enforcement to focus on violent crime at the cost of so-called “quality-of-life” issues, residents and officials said.
‘Half the People’
“When you have half the number of people, you can only do half the amount of work,” Robert Nichelini, Vallejo’s police chief, said in an Aug. 15 telephone interview. “Where it’s taken a toll is the lower-priority crimes, which have had to take a back seat.”
Prostitution and drug dealing used to be fought by a crime-suppression unit of 12 officers and a sergeant, Nichelini said. Since it disbanded in 2010, arrests for solicitation have dropped from about 96 a year to about 24, he said.
The arrest rate “is very low because it’s labor intensive,” Nichelini said. “You have to have a minimum of five people to make the prostitution arrest, which is a misdemeanor and they’re out of jail within an hour.”
Vallejo, located 24 miles (39 kilometers) north of San Francisco, emerged from bankruptcy on Aug. 5. The city’s general-fund spending fell to $66.2 million this year from $87.1 million in fiscal 2008, when it sought court protection.
The recession has also battered the city, eroding tax revenue and leading to a 12 percent unemployment rate as of June. One in every 124 Vallejo homes had a foreclosure filing in July, according to RealtyTrac Inc., an Irvine, California-based provider of default data.
Matt Russell, 27, a Vallejo resident and private contractor for U.S. Immigration and Customs Enforcement in San Francisco, said the city’s police presence has declined since 2008 and “prostitution, especially downtown, is huge.”
Russell said he has considered moving because he’s worried about the safety of his mother, sister and grandmother.
Interim Fire Chief Paige Meyer said his department employs 67, down from 122 in May 2008. Three of eight stations were closed about the time the city filed for bankruptcy.
“What that means to our citizens -- there’s no way to sugarcoat it -- you’re going to get longer response time,” Meyer said in a telephone interview.
The sharp reduction in city services has prompted residents to fill the void, particularly in law enforcement.
Vallejo has 302 neighborhood-watch associations with 2,552 members, up from 10 groups with 60 people in 2009, said Tony Pearsall, executive director of the Fighting Back Partnership, a Vallejo-based nonprofit social-services group.
“They’re doing crime prevention themselves because there is no crime-prevention unit in the police department anymore,” Pearsall, a retired Vallejo police captain, said by telephone.
Another group, the Central Core Restoration Corp., hired two armed security guards beginning in 2008 to patrol Georgia Street, the city’s commercial center, on bicycles during business hours.
“They help us with the panhandlers, loitering and assist us in calling the police if we have more serious infractions,” Janet Sylvain, the group’s president, said in an Aug. 11 interview at her upholstery shop, Pieced on Earth.
About half the stores along Georgia Street stand vacant and existing shop owners say they are scraping by or relying on the Internet or out-of-town business to generate sales.
While the street was almost deserted on a weekday afternoon in August, around the corner, the Greenwell Cooperative, a medical-marijuana dispensary, had a steady flow of customers.
Pot and Prostitution
“You know the only businesses in town making money? Pot and prostitution -- that’s it,” said Matt Shotwell, 30, who opened the dispensary in January 2010 and keeps a bong on the desk in his office.
Shotwell’s dispensary, which also sells pot-infused barbecue sauce, olive oil and cherry slushies, draws about 250 customers a day, he said.
“I’m bringing foot traffic down here,” Shotwell said in an interview.
Vallejo, which doesn’t have local laws controlling medical-marijuana dispensaries, has seen an influx of about 20 such businesses, according to a city estimate. Three shops are within four blocks of Ruth Rooney’s home.
“They came here and feel they’d be under the radar,” Phil Batchelor, Vallejo’s interim city manager, said in an interview this month at City Hall. “But we’re going to change all that. We’re stepping up enforcement, we’re going to tax them and we’re right now looking at setting up zoning requirements.”
With the bankruptcy behind them, city officials said they are taking steps to rebuild Vallejo and its image.
The City Council has approved a November ballot measure asking voters to add a 1 percent local sales tax for 10 years, in addition to the 7.38 percent levy already on the books. It would raise $9.7 million annually, said Deborah Lauchner, Vallejo’s finance director.
Vallejo’s council has also agreed to put a ballot measure before voters in November to impose a business-license tax on the dispensaries of as much as 10 percent of gross sales.
The city has created an economic development department, formed a prostitution task force, and is hiring back some firefighters and police officers.
Kaiser Permanente, the largest U.S. nonprofit health management organization, gave the city a grant of about $736,000 that will be combined with federal funds to hire three police officers, Batchelor said. Kaiser operates the Vallejo Medical Center. The city also got a federal grant to hire nine firefighters and reopen a fire station.
On Georgia Street, a sign in the front window of the Procyon Gallery depicts a pair of women’s boots and reads “Prostitution Free Zone.”
The owner, Greg Leopold, 64, said he earns just enough from his art and framing business to pay the bills and has no plans to move despite the city’s problems.
“I’m stupid and I’m stubborn and I still think the same way about Vallejo as 20 years ago, which is this place has so much potential,” Leopold said. “It can’t stay like this. You’re in the Bay Area for God’s sakes. It can’t stay like this even by mistake.”
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