The City Council of troubled Hercules, Calif., voted Tuesday to put a half-cent sales tax on the June ballot.

City leaders are hoping the measure would help raise revenue for its underfunded budget.

Hercules is entangled in a lawsuit with Ambac Assurance Corp. over a default by its redevelopment agency last month.

City officials have said if they lose the lawsuit it could push the city toward bankruptcy.

The redevelopment agency failed to make a $2.4 million debt service payment on Feb. 1 using its tax revenues, and instead used the insurer’s surety reserve to do so. Ambac claims the RDA illegally transferred the money to the city.

The two sides may be near an agreement, according to reports.

Hercules, which has a population of 26,000, sits on the northeast shore of San Francisco Bay, a few miles south of Vallejo, which itself exited bankruptcy earlier this month. Like Vallejo, Hercules has been hit hard by rising costs while tax revenues fell off during the housing bust.

The city has been mired in financial and political problems. In June, voters recalled the mayor and another council member amid a controversy involving the former city manger’s handling of Hercules’ finances.

Last month, Standard & Poor’s dropped the credit ratings on three series of revenue bonds issued by the Hercules Public Financing Authority five notches to BB from A-minus and placed them on negative watch for potential downgrade because of the lawsuit and the city’s tight finances.

The redevelopment agency and the Hercules Public Financing Authority have more than $162 million of outstanding debt. That does not include debt associated with assessment districts.

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