This onetime shipyard city turned Bay Area commuter village appears to have averted a move that is rare in California and across the nation -- declaring bankruptcy.
A somber City Council had prepared to vote Thursday evening after putting the bankruptcy issue on the table earlier in the week during an emotional hearing that drew hundreds of concerned residents. But Mayor Osby Davis told a standing-room-only audience that the city had reached an agreement in closed session with labor leaders that would be announced today.
"We've got a tentative agreement, which is good," said Jon Riley, vice president of the International Assn. of Firefighters, Local 1186. "Nobody wanted bankruptcy."
City Manager Joseph Tanner had recommended that the council file for Chapter 9 bankruptcy, which would allow the city to renegotiate its debt, but also substantially reduce services for years to come.
For residents, the prospects are grim: Potholes left unfixed. Trees not trimmed. Longer waits for police to respond to calls.
"It's a black eye," said Ray Prather, manager of a downtown Army-Navy store.
"We worry that people won't want to come to Vallejo when they read about this," Prather said.
Civic leaders blame the city's current money woes -- a looming $9.2-million shortfall -- on a downturn in the housing market, flagging efforts to remake its waterfront and the high cost of providing public safety.
Police and firefighters account for 80% of Vallejo's budget, city officials say, due to soaring overtime bills and lucrative union contracts that have boosted base salaries, benefits and retirement plans. In most California cities, the average is about half the budget.
Vallejo's dance with insolvency is a historic exception among California cities, experts say.
"Certainly, bankruptcy is quite rare among municipalities," said Ken Kurtz, a managing director at Moody's Investors Service.
The largest and most infamous involved Orange County's 1994 bankruptcy after billion-dollar losses in the investment market, he said.
Desert Hot Springs also declared bankruptcy in recent years after a court judgment, and so have several small hospital districts, mostly in rural parts of California.
Before entering its current fiscal straits, Vallejo was for generations a hard-knuckle but fiscally stable city, home to the Mare Island Naval Shipyard, which provided jobs and tax revenue to the city.
But with the shipyard's closure in the mid-1990s, this city perched on the north shore of San Francisco Bay evolved into a bedroom community of 117,000.
Vallejo today is a tale of two cities, with struggling old shipyard neighborhoods west of Interstate 80 bumping against new subdivisions of commuters to the east.
On the west side, many residents see the prospect of bankruptcy as the inevitable end to what's been a long slide.
Jackie Kane, a mother of three children ages 9 to 13, waited at a taco truck for lunch, just past a sign on the outskirts of town that proclaims Vallejo the "City of Opportunity."
She said life hasn't been the same since the shipyard closed.
"When they lost Mare Island, it pretty much took the town away," said Kane, whose grandfather arrived in Vallejo with the Navy.
"This place is like the bottom of the ghetto now. There's no money, the streets don't get fixed, the schools don't have counselors. If you have kids, this is not the place to be," Kane said.
Now, instead of from Navy ships moored at the docks, paychecks and tax receipts come from Six Flags Discovery Park.
But not enough. A Wal-Mart shut down not so long ago, robbing the city of a key revenue source.
Efforts to redevelop Mare Island and other shoreline spots haven't hit pay dirt.
Some say that the city's economic doldrums are a result of its own poor planning.
Jeff Coats, a real estate agent, blames the top of the government hierarchy.
"This city's been poorly run for a very long time," Coats said.
Moreover, Vallejo, he said, has long been "a carpetbagger city," with business owners who siphon from the city but live elsewhere, and firefighters and police officers who take their paychecks out of town.
For residents, the fallout is expected to mean reduced library services, fewer recreation programs, rotating fire station closures and deferred maintenance of streets, parks and buildings.
Police, meanwhile, are advising residents to avoid calling 911 except for dire emergencies because there are not enough dispatchers to take the calls. Commanders say officers will focus on only the most serious crimes.
Plans call for staff cuts that would eliminate 40 positions, cut salaries by 5% and lop off the 15% raises police and firefighters have received since 2006.
The firefighters union in particular has become a lightning rod for blame among bitter residents, particularly after news hit that 10 Fire Department employees received salaries topping $200,000.
Union officials say those figures are misleading, the result of huge overtime tabs because the city has failed to hire additional firefighters in recent years.
Efforts to negotiate a way out of the mess went sideways earlier this week, and now union leaders and city officials are pointing fingers at one another.
Ken Ingersoll said he has no stake in the game other than an abiding interest in the city where he's run Gracie's Barbecue and Grill -- named after his daughter -- for the last decade.
He blames city leaders for "mismanagement," but is confident that even with bankruptcy "the city's not going to blow away in the wind. . . . We're not going to liquidate City Hall."
But experts worry that Vallejo's travails could be the start of a broader fiscal crisis for municipalities saddled with high employee health and retirement costs during a time of sagging revenues.
Dennis Walters, contributing editor of California Municipal Bond Advisor, said there has been an "undercurrent of talk" about cities seeking relief by declaring bankruptcy.
"This could be a test case," Walters said of Vallejo. "But it's not like a domino thing. It's doubtful many cities would find this palatable. The damage to their reputation would be too great."