SAN FRANCISCO - Unions representing Vallejo, Calif., employees have appealed a bankruptcy judge's ruling that the city is in fact bankrupt.

The appeal, filed last week, argues that a bankruptcy judge ruled in error in declaring that the city qualified as bankrupt.

Michael McManus, chief judge of the U.S. Bankruptcy Court for the Eastern District of California, ruled Sept. 5 that Vallejo is insolvent because it lacks reserves and faces a multimillion dollar budget deficit, meaning it lacks the cash flow to pay its debts as they come due.

The city of 117,000 filed for Chapter 9 bankruptcy projection in May, citing its inability to continue to afford the pay and benefit packages it had bargained with employees, particularly police officers and firefighters.

The employees argued - and continue to argue with their appeal - that Vallejo did not file its bankruptcy petition in good faith, and that it failed to establish that it faced imminent, inescapable financial obligations that it would not be able to meet.

"We have consistently maintained that the city of Vallejo must look at raising necessary revenues from a host of sources, not just additional cuts from the paychecks of city employees," according to a statement released by the three employee unions pursuing the appeal.

"The city of Vallejo is confident that the ruling that the city is eligible for Chapter 9 relief is correct and will be upheld on appeal," according to a statement the city issued in response.

"The city is dismayed that the appeal will cause both sides to incur even more legal fees. The funds that the city will expend to fight the appeal would be better spent on salaries and other general fund obligations," the city's statement said.

After his ruling earlier this month that Vallejo was bankrupt, McManus set the next hearing in the case for December in an effort to give the city and the unions time to negotiate a settlement.

"The unions' filing in no way impacts the ongoing bankruptcy case," the city's statement said. "For example, the schedule set by Judge McManus on Sept. 8 with respect to the city's motion to reject the collective bargaining agreements will not change, and the hearing on that motion remains set for Dec. 2."

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.