California in Crisis-2

"The lawyer representing California in a lawsuit over prison health care said Monday that state officials aren't ready to comply with a federal judge's order to turn over $250 million for new hospitals for inmates, despite the possibility of a contempt-of-court order against Gov. Arnold Schwarznegger. ... 'This court has no authority to order the construction of prisons,' [Daniel] Powell told [Judge Thelton] Henderson. ... Henderson took control of the prison health care system in 2006, saying evidence in an inmate lawsuit showed that inadequate medical care was killing at least one prisoner a week and that state officals had shown themselves incapable of complying with the constitutional ban on cruel and unsusal punishment", Bob Egelko at http://sfgate.com/, 28 October 2008.

"When the economic crisis deepened this fall, [Vallejo] already was losing scores of police and firefighters because it could no longer afford the rich salaries and benefits it offered after the Sept. 11, 2001, attacks. Now, with crime on the rise and tax revenue sinking, this San Francsico Bay area city faces more cuts in police and fire department budgets. ... Three years ago, the city agreed to a 20% pay increase between 2007 and 2009; an average police officer now makes $121,000. When benefits are included, the number rises to more than $190,000. By 2007, 80% of Vallejo's budget was dedicated to police and firefighters. ... 'We did a bad job of long-term forecasting,' said Craig Whittom, Vallejo's assistant city manager. 'We made agreements that were beyond our means'," Bobby White at the WSJ, 31 October 2008.

Something has to give in California. My bet: its muni bonds. See my 7 August 2008 post, http://skepticaltexascpa.blogspot.com/2008/08/prison-health-care.html.

No matter what happens to Vallejo, Whittom should be fine. I'm sure he has a managing directorship waiting for him at both Moody's and S&P.