And The Walls Come Tumbling Down

According to HuffPo and other news outlets, the City of Vallejo, California filed for bankruptcy protection in the United States Bankruptcy Court for the Northern District of California in San Francisco in order to deal with its ballooning budget deficit caused by soaring employee costs and declining tax revenue.

Vallejo is a San Francisco Bay area suburb of about 120,000 residents and it is the largest California city to seek bankruptcy protection when it filed for bankruptcy under Chapter 9 of the Bankruptcy Code.

Mayor Osby Davis said,"We've exhausted all avenues at this point, and this is all we had left  ... We can't pay our bills."

The police and firefighter unions plan to file a legal challenge, arguing that the city's finances aren't as dire as officials claim and there are other ways to fix the budget deficit, said Mat Mustard, vice president of the Vallejo Police Officers Association.

Vallejo, a mostly working-class city about 30 miles northeast of San Francisco, faces a $16 million budget deficit in its fiscal year starting July 1.

The foreclosure crisis and economic downturn have caused a sharp decline in revenue from sales tax, property tax and development fees.

Other cities around the country could find themselves in the same position as Vallejo because they're also struggling with skyrocketing employee expenses and falling revenues, experts say.

"If the economy doesn't turn, you're going to see other cities in the same spot," said Marcia Fritz, vice president of the California Foundation for Fiscal Responsibility. "You're seeing a lot of cities and counties where reserves are being drawn down to pay for benefits."