California cities, beset by budget gaps, consider bankruptcy

When the city of Vallejo, Calif., filed for bankruptcy protection in May, the logical question was: Is this a sign of things to come?

Now two more California cities – Rio Vista and Isleton – are considering bankruptcy protection as an option as they face large budget shortfalls and staggering debt.

While experts caution against ringing the alarm bells just yet, they do say tough economic times could push municipalities already on the brink over the edge.

"I think it's quite possible municipal bankruptcies could become somewhat more common but will still be very rare," said Jason Dickerson, budget and policy analyst at the state's Legislative Analyst's Office. "There are more municipalities that will look at what it means."

Cities, counties and other governing bodies across the state are reeling as budget projections many considered to be conservative at the start of the fiscal year, July 1, are proving to be wildly optimistic as the housing slump is affecting property tax revenue and sales tax receipts are well below last year.

Many municipalities not only are looking ahead to cuts next year but also are actively trimming expenditures to fix shortfalls in the current fiscal year's budget.

Read the full story at