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experts. The City of Vallejo spent approximately $11 million in attorneys’ fees alone. Even after municipalities emerge from Chapter 9, they pay an ongoing cost in the form of significantly higher interest rates. Cities going through bankruptcy, including Vallejo and Mammoth Lakes, have had their municipal bond ratings downgraded to junk or near-junk status, making it extremely difficult for them to borrow funds to finance government activities or invest in the community. Having exhausted other options, even after emerging from bankruptcy in November 2011, the still-struggling city of Vallejo had to raise its sales tax from 7.3 percent to 8.3 percent. Bankruptcy is a disruptive process and can taint the public’s perception of the community, causing further economic hardship. The process creates uncertainty, making the community less attractive to businesses. In August, Starbucks’ Evolution Fresh announced that it was relocating its 120-employee manufacturing facility from bankrupt San Bernardino to nearby Rancho Cucamonga. The company turned down offers from city officials to help them find an appropriate new building within San Bernardino. Andrew Morris observed, “People don’t understand what bankruptcy means.” When a municipality declares bankruptcy, residents do not know what to expect. Many wonder whether the local government will continue to maintain parks, sweep the streets, or effectively deal with crime. In the case of Mammoth Lakes, bankruptcy has really hurt the town’s tourism industry. Morris said, “Mammoth is a resort town, and the hoteliers and the people doing tourism promotion have actually gotten a lot of questions from people: ‘Are the mountains still in existence? Is the resort still going to be there? Can we still come?’” According to Bloomberg, 61 percent of Mammoth Lakes’ general fund revenue comes from hotel taxes; a weaker tourist season will make it even more difficult for the town to improve its financial situation and repay its creditors. Most municipalities will try to avoid bankruptcy by taking steps such as negotiating with San Bernadino City Attorney, James Penman Photo Credit: The San Bernadino Sun, Rachel Luna
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