Last year's bankruptcy filing by the city of Vallejo, Calif., and the prospect of bankruptcies of several other cities have been a wake-up call for municipalities across the state. California's districts are dealing with reduced revenue, generally caused by a reduction in local tax dollars collected. At the same time, the Legislature has elected to close the state's huge budget gap by permanently taking about $2 billion from local governments. On top of all of this, many cities and counties face increased expenses due to rising health care costs and pension obligations.

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