Vallejo, which filed for Chapter 9 bankruptcy protection last month, would renege on promised pay increases for city workers but continue to make its full debt service payments under a fiscal 2008-2009 budget proposed by city manager Joseph Tanner this week.

City staff proposed a $78.7 million general fund budget that reduces spending by 10% and builds a $1 million reserve. Revenue is projected to fall 7.8% next year to $79.7 million for the fiscal year that begins July 1. The decrease in spending is bigger than the decrease in revenue because the city expects to run a $4.2 million deficit in the current fiscal year, spending the last of its general fund reserves.

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