A closer look at Vallejo's woes Problems began when the Mare Island Shipyard was decommissioned in 1996

###Live Caption: Richard Lemke, the proprietor of Mr. Ric Men's Clothing on Marin St in Vallejo, Calif., sits in front of his building and reads the paper on Wednesday March 5, 2008. Photo By Kurt Rogers / San Francisco Chronicle ###Caption History: Richard Lemke the Proprietor of Mr. Ric specialist in fine men�s cloths scenes 1965 on Marin St in Vallejo sits in front of his building and reads the paper. On Wednesday March 5,2008 Photo By Kurt Rogers / San Francisco Chronicle ###Notes: How Vallejo went from budding renaisance city to near-bankrupt in a coupal of years. ###Special Instructions: MANDATORY CREDIT FOR PHOTOG AND SAN FRANCISCO CHRONICLE/NO SALES-MAGS OUT less ###Live Caption:Richard Lemke, the proprietor of Mr. Ric Men's Clothing on Marin St in Vallejo, Calif., sits in front of his building and reads the paper on Wednesday March 5, 2008. Photo By Kurt Rogers / San ... more Photo: Kurt Rogers Photo: Kurt Rogers Image 1 of / 8 Caption Close A closer look at Vallejo's woes 1 / 8 Back to Gallery

The city of Vallejo was in trouble long before James Moore bought a freshly butchered pig's head, mounted it on a Weber barbecue grill and wheeled it into a packed City Council meeting last week.

"Vallejo has been hogtied by its police and fire unions," Moore, a local businessman, said later. "The unions are killing the goose that laid the golden egg. Do I need to bring a dead goose to next week's meeting? I hope not."

Crippled by a free-falling economy, an inability to create tax revenue, management recklessness and a legacy of generous contracts for police officers and firefighters, officials are slashing senior center hours and closing firehouses in a frantic bid to keep Vallejo from becoming the first large city in California to declare bankruptcy.

The city's financial ruin can be seen in its decaying downtown, where businesses sit dark and locked, and at City Hall, where seven people - including, briefly, the chief of police - have held down the city manager's post in the past four years.

Choice plots of land on an attractive waterfront lie undeveloped. Nearby housing tracts sit unfinished. And in a city that recorded 17 homicides last year, the most since 1994, police are asking residents to be judicious when calling 911.

When a city contractor called acting City Clerk Mary Ellsworth recently to make a pitch, she quickly told the caller: "If it involves paying any money at all, I can't even talk to you."

Many Bay Area cities are struggling through the collapse of the housing market and a broader economic downturn. But Vallejo's problems go back further and run deeper. A key moment was the decommissioning of the Mare Island Naval Shipyard on April 1, 1996, after 150 years as the city's economic and cultural lifeblood.

Since then, Vallejo has made few strides in reinventing itself.

"The city did not, over a long period of time, set aside tracts of land for industry or business parks or malls," said Assistant City Manager Craig Whittom, who oversees economic development and has become the city's point man in dealing with the crisis. "The development pattern in Vallejo has been largely residential."

New malls in neighboring cities have beckoned Vallejo shoppers, and taken their sales taxes.

In the past two years, sales tax revenue is off 10 percent, or $1.8 million, records show. Property transfer taxes are down 56 percent, a $3.4 million annual blow.

Meanwhile, public safety salaries and benefits have ballooned, demanding an unusually high 74 percent of the city's general fund budget, which also funds services including street repairs and senior centers.

Vallejo's police officers and firefighters are among the highest paid in the Bay Area, even after the unions have deferred raises and taken salary cuts during the city's fiscal crisis.

Crisis of small failures

Despite the city's current woes, residents haven't given up on it. Thomas Selva, 82, griped about Vallejo's financial woes as he strolled along the waterfront on a recent afternoon. But he also held forth on its qualities.

The diverse city has a funky charm that's endeared it to generations of Mare Island shipyard workers, working-class families seeking affordable housing and thousands of artists, gay people and others who've fled San Francisco in recent years in search of Victorians, fog-free summers and a tolerant community.

"It's a town that has a lot of potential," said Selva, who still believes it after 51 years living there.

Vallejo residents have turned out by the hundreds at City Council meetings, demanding to know why the city has sunk into a swamp while its neighbors persevere. The answers they're given are complicated and varied, a tale of seemingly endless small failures.

A telling example involves Wal-Mart, which leased a temporary site along Highway 29 in Vallejo and sought to build a Supercenter, complete with groceries. While city leaders bickered over the project and Wal-Mart's corporate record, the company built a store in neighboring American Canyon. Wal-Mart closed the Highway 29 store in September.

Meanwhile, high-end Nugget Markets ditched plans to build a store in Vallejo after failing to get assurances that it wouldn't have to compete with a Wal-Mart. Now, Vallejo has neither a Wal-Mart nor a Nugget.

Plans to unite Vallejo's downtown and waterfront in a bustling mix of condominiums, gourmet restaurants and offices have stalled with the housing market. At Mare Island, only 250 of the 1,400 units envisioned for the former shipyard have been built.

Firefighters' salaries

Perhaps the thorniest dilemma, city officials say, revolves around contracts with Vallejo's powerful public safety unions.

Many residents of the historically pro-labor city have directed anger at firefighters who, according to campaign finance records, pumped nearly $50,000 into last November's council election, riding two winners and one loser.

The firefighters are now paying for a decades-long record of savvy at the bargaining table.

Union president Kurt Henke, a tenacious assistant chief who was once fired and then rehired and later sued a batch of city officials for slandering him, acknowledged that his members once made 15 percent more than counterparts in the Bay Area and now earn perhaps 10 percent more.

Vallejo's base pay for firefighters is more than $80,000 a year. Last year, 21 of them topped $200,000 in salary and overtime, according to city payroll records.

The city has stumbled repeatedly in dealing with the union, interviews and records show. For example, the city has matched the average percentage of firefighter raises in other Bay Area departments, which boosts Vallejo's salaries because its firefighters are paid more to begin with.

"You do that for 20 years, and here you are," said acting finance director Susan Mayer, who said the city had not taken a survey of other fire departments' salaries in real dollars since the 1980s.

Making matters worse, the city budgeted a savings of $5 million last year after cutting the number of firefighters working each day by four, only to see an arbitrator side with firefighters and order the higher staffing level to ensure public safety. That fight accounted for part of the city's $500,000 tab for labor attorneys in the past three years, Mayer said.

Henke said his members have been scapegoated and, along with police officers, have saved Vallejo $18 million in concessions since 2000. Firefighters in Vallejo often work 96 hours straight as a result of staffing shortages, leading to severe fatigue, Henke said.

Henke said city leaders in the past hid money before entering contract negotiations as a cry-poor bargaining ploy.

"I have a high school diploma, a driver's license and a pulse," he said. "You mean to tell me that all of us good-old country boys went in and snookered them? ... That's what they're asking people to believe."

Emergency cost-cutting

After two years of budget deficits that prompted city leaders to drain reserves, Vallejo narrowly dodged bankruptcy last Monday, when the City Council approved a cost-cutting plan to keep the city solvent through June 30.

The plan includes layoffs of 16 city staffers and the elimination of 12 slots for police officers. There are deep cuts to the arts and transportation, and closures of two fire stations, which took effect last week. The cuts, combined with 8 percent salary reductions that police and firefighters have agreed to, will save the city about $4 million.

But bankruptcy looms if the city can't come up with a long-term financial plan by April 22, City Manager Joe Tanner told the council last week.

"This is not a cure. This will only stop the bleeding for four months," Tanner said. "I am not recommending this plan with confidence."

Tanner himself has faced criticism for making a city-best $316,688 salary last year - $71,881 more than San Francisco Mayor Gavin Newsom.

Since the council first discussed bankruptcy at a Feb. 13 meeting, 20 police and firefighters have retired, concerned that their retirement packages would be jeopardized. But it's not clear when the city will be able to pay them a total of $2.5 million in payouts.

Whittom, the assistant city manager, said Vallejo's credit rating is falling and that officials had to factor in $300,000 in extra interest on bank loans over the next four months.

Shuttered storefronts

Vallejo's struggles are perhaps most visible in its old downtown, which once drew shoppers to stores like Sears, JC Penney and Montgomery Ward. The sidewalks are wide and some of the architecture is inviting, but the energy has been sucked away.

Only a few businesses - including a store selling the type of hydroponic lighting used in marijuana cultivation - get a steady flow of business.

On a recent weekday afternoon on a central stretch of Georgia Street, two blocks from the waterfront, 46-year-old Calvin Cosey - who washes windows for a few dollars - swept the sidewalk outside an art gallery that was temporarily closed.

"I used to have 13 clients," Cosey said. "Now I have four. If no one gets on this case, they may lose this downtown."

On one side of the gallery, an eviction notice was taped to the locked door of a boutique. The building on the other side, once a jewelry store, was boarded up. Across the street, Joshua Dowdie was advertising a "liquidation sale."

"We've been broken into twice in the last six weeks," said Dowdie, 20, who runs the Excess Outlet for his mother, selling everything from designer jeans to kits for painting Easter eggs. "Half the people down here are selling drugs. The other half are walking around, but they're not buying anything."

For all of Vallejo's challenges, there also are also assets and a measure of hope. The city has an undeveloped waterfront, a ferry connection to San Francisco, deep water supplies and a public housing authority, as well as expanding hospitals and colleges.

It also has the Empress Theatre, a focal point for dreams of better days. General Manager Randy Bobst-McKay and his staff last week put finishing touches on the revival of a 96-year-old venue that has been dark since the 1989 Loma Prieta earthquake.

Breathing life into the onetime vaudeville house took four years, $6.85 million and a deal between a downtown developer, the Vallejo Community Arts Foundation and the city's redevelopment agency, which loaned funds.

The grand opening is set for Saturday, with a 7:30 p.m. showing of "Casablanca."