The cost of Vallejo’s 2008 bankruptcy and what that means for California now

A few weeks back, San Bernardino joined Stockton and Mammoth Lakes on the road to municipal bankruptcy, a journey which is supposed to help the city get its fiscal affairs in order.

Vallejo knows all about that trip. The city of 116,000 people northeast of Oakland ended up in bankruptcy when the economy collapsed four years ago.

In his second-story office above his sparkling Team Chevrolet Cadillac showroom, car dealer Kenny Ross pulls up a satellite photo on his iPad. It’s a bird’s eye view of Vallejo’s “Auto Row” just after bankruptcy.

"That closed," he says, pointing at the screen. "That closed. This Pontiac-GMAC store quit building. The fire station closed. And we were out here on an island."

Bad times in Vallejo — but it was an earlier round of bad times that drew Ross from Pomona to Vallejo years ago. When the Mare Island Naval Yard closed in 1996, real estate prices in Vallejo fell enough that Ross could afford a General Motors dealership.

In 2008, he’d remodeled the Team Chevrolet Cadillac flagship store, tacking on a gym, two kitchens and two floors of sales offices …and then the bottom fell out for GM and for Vallejo.

Ross was on the Chamber of Commerce at the time and when Vallejo city officials talked bankruptcy, Ross immediately shouted, "No!”

“I was just trying to avoid the stigma of bankruptcy," he explains. "And have people from GMAC call me from out of Detroit and say, ‘Hey! What’s going on in your city? Are you going to be OK?' And, of course, we’d tell them, ‘Of course, we’re going to be OK.’ And then we’d get off the phone and I’d say, ‘Are we going to be OK?’”

Ross says bankruptcy helped Vallejo write off municipal debt, but it hurt public safety. The city cut deeply into pay and benefits for police and firefighters. Firefighter Kevin Hickey says some people blamed them for the city’s bankruptcy.

"We were the worst thing that ever happened," he recalls. "We brought this city down, blah, blah, blah... and you would see it! We had people giving us the bird as we were going to calls, flipping us off."

Firefighter Jimmy Ferrucci says the pay cuts were severe.

"You’re talking upwards of 30 and 35 percent today," he says. "And not many people can budget for a 30-35 percent pay cut by the next pay period. That’s a big deal."

"Everybody’s either in foreclosure or lost their homes or had to modify or go bankrupt or something," says Fire Captain Erick Diez, who almost lost his own home.

In the recession, Vallejo’s sales tax revenue dropped 20 percent; property tax revenue fell 30 percent. Realtor Peggy Cohen-Thompson heads the Black Chamber of Commerce in Solano County.

"The foreclosures had more impact than the bankruptcy," says realtor Peggy Cohen-Thompson, head of the Black Chamber of Commerce in Solano County. "Because foreclosures mean that people are losing their homes; they’re moving away. So businesses aren’t being supported; local businesses don’t have that patronage, if you will."

Cohen-Thompson says the bankruptcy helped Vallejo chart a new course, but made a bad housing crisis worse. News reports about rising crime scared off bargain-hunting buyers who might have snapped up the town’s historic Victorian homes, according to her.

Ann Smith moved from San Francisco to Vallejo before the city went bankrupt. She says after Vallejo’s police chief announced officers would no longer respond to property theft calls, burglaries spiked.

"There started to be changes in the neighborhood," she says. "And we had a crime family move in a street over [...] people that rented the house. They were drug dealers."

Smith says people who lost their homes to foreclosure moved out — and drug dealers, pimps and prostitutes moved in.

Today, there are about a thousand foreclosed properties in Vallejo. Smith says the price of a two-bedroom home in her neighborhood fell from $400,000 down to $50,000, and that now some homeowners can’t leave.

"They're underwater in their mortgages and maybe they don’t want to let their homes go," she says. "They can’t sell their property. So we’re kind of faced with either becoming landlords and renting out our property or taking back our city."

"I think a lot of people would rather take back the city than try to move," Smith adds.

It started when police cut back patrols. Smith says after the bankruptcy, the number of citizen neighborhood watch patrols in Vallejo jumped from 11 to more than 300. Vallejo residents also took back their city government by electing new leaders who say the bankruptcy was a wake-up call — and not just for Vallejo.