Grassroots austerity: municipal bankruptcy from below in Vallejo, California

Abstract

Austerity appears to be a globally coordinated restructuring process, where international and national governments cooperate to stymie economic crisis and socialize the costs of systemic economic failure. However, austerity is also shaped from the bottom-up. This paper examines the 2008 bankruptcy of Vallejo, California. This city of under 120,000 people became the first municipal bankruptcy in the Great Recession period. We explore how it became the first to fail. In doing so, we outline the finances of a city whose entrepreneurial activities continued to flounder, making it a good candidate for austerity reforms. However, we also find the city home to a political movement long predicting a municipal default. When economic crisis hit, this movement pushed for the city to make an unprecedented test of Chapter 9 bankruptcy law. Vallejo's bankruptcy, and the related changes to Chapter 9 law, are therefore interpreted as events that were generated by systemic conditions but ultimately precipitated by decisions taken at the municipal level. We therefore call for austerity to be understood as both a top-down and bottom-up process of state restructuring.

From Big to Small Cities: A Qualitative Analysis of the Causes and Outcomes of Post–Recession Municipal Bankruptcies

“…Bankruptcy filings generated legal debates over (a) what constitutes a municipal bankruptcy and (b) what protections exist for various classes of municipal creditors. Federal bankruptcy court rulings made during the first Great Recession municipal bankruptcy in Vallejo would shift prevailing understandings of Chapter 9 legislation (Davidson and Kutz 2015).…”

Understanding low-income debt in a high-income country

“…Nor are local governments merely passive recipients of austerity cuts -some have also actively taken on large debts themselves, turning to debt-financed municipal entrepreneurialism to increase their budgets and expand their political and economic options under austerity. While there is a long history of municipal entrepreneurism in US cities (Harvey, 1989;Davidson and Kutz, 2015), the model was only pursued on a large scale by local authorities in the UK with the imposition of austerity cuts. Some local authorities have taken out low-interest public sector loans to buy office buildings, shopping centres, and other commercial property, often investing outside their boundaries, in order to take on the role of property speculators themselves (NAO, 2020).…”

“…Unfortunately, local government's track record in municipal entrepreneurialism has not always been strong. After the 2008 financial crisis, a number of US cities and municipal services entered bankruptcy (Peck, 2014), including Detroit in 2013 (Reese et al, 2014;Hall and Jonas, 2014), Valejo in 2008 (Davidson and Kutz, 2015), and San Bernardino and Stockton in 2012 (Davidson and Ward, 2014). Although Detroit was distinct in the size and scale of debt, many cities shared the problems of falling federal revenues and declining property taxes.…”

Extreme municipal fiscal stress and austerity? A case study of fiscal reform after Chapter 9 bankruptcy

“…However, accounts of how this constrained environment manifests differ. Critical urban scholarship has often used bankrupt cities (Davidson and Kutz, 2015;Peck, 2014;Peck and Whiteside, 2016), such as San Bernardino (2012), Stockton (2012), and Detroit 2013, as examples of how extreme fiscal stress is inevitably remedied by austerity reforms in the neoliberal, entrepreneurial urban system (Hackworth, 2016;Peck, 2014). Bankrupt cities therefore illustrate the concluding point of systemic disciplining, where city administrations become beholden to the legal and institutional structures of neoliberalism.…”