Vallejo creditors could get (almost) stiffed

If the Northern California city has its way, general unsecured creditors would collect as little as 5 cents on the dollar. That would make Vallejo the first general municipality that failed to fully repay its debts in bankruptcy. The restructuring plan, which assumes that the city can't pay for essential services, like police and fire, is being watched closely by those cities running into fiscal problems. In other words, it's being watched by everybody. From Bloomberg:

The creditors, who include retirees and former employees, would be paid $6 million over two years. The plan must first be voted on by creditors before U.S. Bankruptcy Judge Michael S. McManus decides whether to approve the proposal. "While the city regrets that it cannot pay a higher percentage, the fact is that the city lacks the revenues to do so while maintaining an adequate level of municipal services such as the provision of fire and police protection and the repairing of the city's streets," Vallejo said in the filing.

You might recall that Vallejo was forced into bankruptcy when it couldn't cover the costs of union contracts covering cops and firefighters. The unfortunate aspect of all this is that the city was given the chance to rewrite those contracts, but failed to do so. Mike Shedlock has a good overview at Business Insider.