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Sep 5, 2008 5:22 pm US/Pacific

Judge Approves Vallejo's Bankruptcy Filing

VALLEJO (AP) ― A federal judge has ruled that the city of Vallejo is eligible for Chapter 9 bankruptcy protection.

U.S. Bankruptcy Judge Michael McManus in Sacramento on Friday rejected a legal challenge by Vallejo's fire and police unions, which argued that the city's finances weren't as bad as officials claimed.

The San Francisco Bay area city of 120,000 became the largest California city to file for bankruptcy in May, citing shrinking revenue and escalating public safety costs.

Vallejo faces a $16 million budget deficit after seeing revenue decline amid an economic downturn and housing market collapse.

The judge will next decide whether to allow the city to renegotiate its labor contracts with its police and firefighters.

(© 2008 The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.)

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