2012 AAG paper

Bankruptcy, Bonds and the alleged legacy of the Zodiac Killer: The implications of Vallejo’s fiscal hypochondria

Since the 1970s cities have been significantly impacted by a growing reliance on debt financing and resultant interactions with capital markets. Cities must now issue municipal bonds in order to implement public works, fund development projects or bridge funding gaps. In the US, municipal indebtedness has meant the price of entrepreneurial failure is Chapter 9 municipal bankruptcy. Yet Chapter 9 filings remain rare. As a consequence, municipal bonds are presumed some of the most secure, low-risk investment vehicles in the capital markets. However, in 2008 this presumption was severely disturbed when the City of Vallejo, California, filed for Chapter 9 bankruptcy protection. Vallejo claimed it could no longer honor those labor contracts initially bargained in the wake of the 1969 Zodiac murders. Simply, the city claimed its general fund expenditures, mostly fire and police budgets, had outgrown total revenues. Unlike other recent filings, the most notable being Orange County, California, in 1994, Vallejo’s bankruptcy was not the result of speculative developments and/or highly-leveraged investments gone wrong. In this paper we explore the factors that led Vallejo’s city government to file an unprecedented claim for municipal bankruptcy. This leads us to discuss how institutional actors became mobilized within bankruptcy courts, offering a rare illustration of the structural processes conditioning urban governance. In conclusion we sketch out the nation-wide implications of Vallejo’s bankruptcy with a particular focus upon the ways in which labor has now assumed even more exposure to the risks of entrepreneurial governance.

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