California city could be first of many to file for bankruptcy

If the California courts permit the city of Vallejo to escape its obligations in bankruptcy court, Friday's filing could set off a wave of similar filings by overextended government entities in the Golden State and elsewhere. Vallejo expected to run out of money in the next fiscal year, which starts in July, and went into court seeking to invalidate its public safety labor contracts, which consume 75 percent of its funds. The city of 120,000 apparently was relying on rising home prices to keep its revenues rising, but the housing market has crashed. And the state government is unable to pay its own bills and is furiously borrowing money, which appears to preclude a last-minute bailout from Sacramento. Cities and other local government entities in California have been forced into a kind of gambling game with their resources since the passage of Proposition 13 in 1978, which slashed property taxes they had always depended on. The state government usually allocated money to help local governments but, upon taking office in 2003, Gov. Arnold Schwarzenegger cut the state's vehicle license fee that had been allocated to them. With California officials afraid to raise the state income tax for fear of another voter backlash, local governments have been struggling ever since. Vallejo's situation has been made worse by its heavy spending on public safety, but it is far from unique. Unless local officials learn to bargain effectively with employee unions, and unions agree to reasonable limits on their demands for money, this situation is certain to be repeated over the next two or three years. Maybe the problem is that the public employees who run the governments are unable to say "no" to the public employees who work for them.