Municipal bankruptcy does not happen overnight. Cities do not wake up one morning and discover they are insolvent. Bankruptcy is the end of a long sequence of ignored warning signs—patterns that repeat themselves with remarkable consistency.
California offers clear case studies. Vallejo filed for bankruptcy in 2008. San Bernardino followed in 2012—different cities, different political cultures—but the same financial failure modes. Vallejo exited bankruptcy in 2011. San Bernardino emerged years later, after a lengthy and costly restructuring that stretched into 2016–2017.
And that is why residents of El Cerrito should be paying close attention now.
Bankruptcy Starts Long Before the Filing
The first and most common warning sign is a structural deficit—when a city’s ongoing revenues cannot cover its ongoing costs, even in good economic years. Vallejo had this problem for years before filing. San Bernardino normalized it. Balanced budgets existed on paper only, patched together with optimism, deferrals, and one-time fixes.
El Cerrito increasingly shows this same pattern. Budgets are described as balanced, but only after dipping into reserves, delaying decisions, or relying on assumptions that require everything to go right. That is not balanced. That is fragility. A city with structural deficits is not facing a one-time challenge. It is facing a math problem that repeats every year until leadership makes structural corrections.
Cash Problems, Not Just Accounting Problems
Another critical signal is cash stress—the inability to comfortably pay obligations as they come due. In San Bernardino, this was unmistakable. Bills stacked up. Financial reporting lagged. The city entered bankruptcy unable to demonstrate basic fiscal control.
El Cerrito is not there—but it is moving closer than residents are being told. When reserves fall below policy targets and are treated as an operating tool instead of a safeguard, the distinction between temporary stress and cash risk starts to blur. The point of reserves is to protect residents from volatility. When reserves are used to fund everyday operations, volatility becomes the operating model.
Fixed Costs Crowd Out Services
In Vallejo and San Bernardino, fixed costs—especially pensions and retiree obligations—grew faster than revenues. Over time, these obligations crowded out basic services. The cities did not fail because residents stopped caring. They failed because leadership allowed long-term commitments to grow without matching revenue capacity.
El Cerrito now faces the same pressure point. When ongoing pension and retirement costs account for approximately 30% of the operating budget, that is not a minor line item. It is a structural constraint that can quietly dominate decision-making. When pension costs take that much of the pie, everything else competes for what is left: staffing, maintenance, public safety support, parks, street conditions, and basic responsiveness. If the city is not willing to reform operations, protect reserves, and improve productivity, the only remaining move is to ask residents for more money.
That is exactly the stage Vallejo and San Bernardino were in before bankruptcy.
Debt and Big Bets Make the Fall Harder
Bankrupt cities often share another risk: big bets made during optimistic years that become heavy burdens when conditions change. When revenues falter, debt service becomes non-negotiable, and services take the hit. Cities end up protecting financing agreements while residents experience fewer services for the same or higher taxes.
El Cerrito residents are being asked to fund large, long-term commitments without a clear demonstration of sustainable operating capacity. When cities borrow or tax to build without proving they can afford to operate, they repeat the same mistake—just with different packaging.
Reserves Are a Warning, Not a Solution
One of the clearest signals across bankrupt cities is the misuse of reserves. Reserves are meant to buffer downturns, not prop up everyday operations. Vallejo and San Bernardino both drained reserves before filing.
El Cerrito continues to claim that they ended last year with a positive fund balance. However, they do not disclose the reason for this balance. In reality, the positive fund balance is due to the city withdrawing money from reserves throughout the year. If the city had not used these general funds, it would have ended the year with a negative balance.
El Cerrito’s reserves are already under pressure. When reserve policies are waived or explained away, that is not prudent management—it is a warning flare. Reserves are the margin between stability and crisis. If that margin is shrinking while the city continues to add long-term commitments, the risk compounds.
Leadership Choices Decide the Outcome
Bankruptcy is not inevitable. Vallejo exited in 2011. San Bernardino emerged years later. But both paid a steep price: damaged credibility, reduced services, years of legal conflict, and long-term constraints that still shape decisions today.
El Cerrito is not bankrupt. That is the point. The lesson is not fear—it is foresight. The difference between cities that fail and cities that recover is leadership willing to confront reality early: acknowledge structural deficits, align long-term costs with real revenues, protect reserves, fix operations before asking residents for more money, and provide timely, complete financial reporting.
The Question for El Cerrito
Residents are being told that new taxes are necessary to preserve quality of life. Vallejo and San Bernardino were told the same thing—right up until bankruptcy proved that the problem was not insufficient taxes, but insufficient discipline.
El Cerrito still has a choice. The warning signs are known. The history is documented. The question is whether city leadership will act now—or whether residents will be asked to absorb the consequences later.
Fact Box: How Cities Slide Toward Bankruptcy
Vallejo (Filed 2008 | Exited 2011)
- Long-term labor and retiree costs outpaced revenues
- Structural deficits masked by short-term fixes
- Reserves depleted before meaningful reform
- Bankruptcy used to reset contracts after options were exhausted
San Bernardino (Filed 2012 | Emerged 2016–2017)
- Chronic operating deficits became normal
- Cash flow problems and late financial reporting
- Retirement obligations crowded out services
- Years-long bankruptcy with reduced credibility and service impacts
El Cerrito (Today)
- Structural deficits: recurring costs outpace recurring revenues
- Ongoing pension and retirement costs ate 30% of the operating budget crowd out service capacity unless operations are reformed
- Recurring budgets rely on reserves and assumptions
- Reserves falling below policy targets
- Growing fixed costs with limited structural reform
- New taxes proposed before operational corrections are completed
- Leadership’s default “solution” is to increase taxes—rather than fix the structural drivers. That is not acceptable. Residents should not be treated as the City’s standing line of credit.
Key Takeaway
Cities do not go bankrupt because residents fail to support them. They go bankrupt when leadership delays hard decisions and relies on residents to fill structural gaps—until reserves are gone and the city runs out of options.
Call to Action: Ask for Leadership, Not Another Tax
El Cerrito is not bankrupt. That is precisely why residents must speak up now.
Before approving new taxes or long-term financial commitments, residents should ask city leadership to:
- Explain how ongoing costs will be covered without relying on reserves
- Demonstrate that existing operations have been right-sized and reformed
- Address how pension and retiree cost growth will be managed sustainably
- Commit to restoring and protecting reserve levels
- Provide clear, timely, and complete financial reporting
This is not about transparency theater. It is about services. Residents pay high taxes for a functioning city—responsive staffing, maintained infrastructure, reliable public services, and honest financial stewardship.
Residents should contact the City Manager and City Council and ask for financial discipline, performance, and leadership that prevent El Cerrito from repeating the mistakes of Vallejo and San Bernardino.
Because bankruptcy is not a surprise. It is a choice made over time—and it is one El Cerrito can still avoid.
El Cerrito Committee for Responsible Government (ECCRG) 