SAN FRANCISCO - The El Monte, Calif., City Council decided not to declare bankruptcy after winning concessions from public employees to balance its 2009-2010 budget on Tuesday.
The council had a motion on its agenda Tuesday night that would have instructed the city staff to "commence preparation for the initiation of Chapter 9 municipal reorganization proceedings."
But the council pulled the agenda item after public employees agreed to cuts that allowed the city to pass a balanced budget for 2009-10.
Public employee unions agreed to give up contracted pay increases for the upcoming year, to accept furloughs for non-police employees that amounted to a 10% pay cut, and to pay more of their pension and health care costs, after the city threatened bankruptcy.
"We don't want to go into Chapter 9," Councilman Juventino Gomez said at the Tuesday evening meeting. "I am so proud of our bargaining units."
The Los Angeles County city of 122,000 had to cut $12 million from its budget after a sharp decline in sales tax revenue. El Monte gets about half of its general fund revenue from auto sales taxes, and its budget was hobbled last year by the closure of three of its eight auto dealers.
The city cut about $10 million from its budget through fire station closures, layoffs of 100 workers, and other spending cuts. It closed the final $2 million of the gap with concessions from employee unions, the final concessions being agreed to by El Monte's police union as the City Council began deliberations Tuesday.
The head of the police union announced at the council meeting that officers had agreed to givebacks that allowed the city to pass a balanced $49.4 million general fund budget for fiscal 2009-10.
"Our pie has been shrinking dramatically," Marcie Medina, deputy city manager for administrative services, told the council. "We have to reduce our service levels to basic service."
The cityhad about $37 million of long-term bonds and certificates of participation outstanding at the end of fiscal 2008. It could still face more financial distress this year because California is considering balancing its budget by borrowing from local government taxes and tapping into redevelopment agency budgets.
The city could lose almost $4 million in the upcoming budget year if state lawmakers go ahead with those plans, according to Medina.
"I hope to God and I pray that the state doesn't hit us," Gomez said.
El Monte would have been the second working-class California city forced into bankruptcy during this recession. Vallejo, a city of 117,000 near San Francisco, last year declared the biggest municipal bankruptcy since Orange County, Calif.'s 1994 filing.
Vallejo blamed the bankruptcy primarily on rising labor costs and the loss of major retailers, such as Wal-Mart stores.
