Vallejo, Calif., Bankruptcy Still Warning a Decade Later

Vallejo, Calif., emerged from bankruptcy as a symbol for hard times and hard-fought labor battles, offering lasting lessons to debtors, retirees, unions, and municipalities, attorneys told Bloomberg Law.

Vallejo was the first of a trio of municipal bankruptcies in California brought on in part by the market meltdown in 2008, generous retiree and employee benefit packages, and a limited ability under California law to increase taxes. A big lesson from Vallejo—reiterated by Stockton and San Bernardino—was that strapped municipalities have a lot of leverage in negotiating lower benefits, lawyers said.

“Almost every major battle that has been fought has come ...