Cambridge Journal of Regions, Economy and Society 2014, 7, 8197

doi:10.1093/cjres/rst030
Advance Access publication 26 December 2013
The Author 2013. Published by Oxford University Press on behalf of the Cambridge Political Economy Society.
All rights reserved. For permissions, please email: [email protected]
Picking up the pieces: austerity urbanism, California
and fscalcrisis
MarkDavidson
a
and KevinWard
b
a
Department of Geography, Clark University, 950 Main Street, Worcester, MA 01610, USA,
[email protected]
b
School of Environment, Education and Development, The University of Manchester,
Manchester M13 9PL, UK, [email protected]
Received on May 13, 2013; accepted on October 23, 2013
California continues to be at the epicentre of the current Great Recession. Cities around the
state are facing a multiple-fronted assault on their fscal situation. Although not newthe
states precarious fnancial situation is the stuff of legendsthe cutting in federal revenues,
together with the decline in property taxes stemming from the drop in house prices and the
rising costs of servicing debt incurred through years of speculative growth strategies have left
a number of city governments in the state horribly exposed. This paper explores the place
of a number of Californian cities in the context of the wider onset of US austerity urbanism.
This constitutes a deepening and widening of some aspects of earlier neo-liberalisation.
Keywords: austerity urbanism, California, crisis, fnance, redevelopment
JEL Classifcations: R38, R58
Introduction
the austerity war is now raging. States are
cutting funds for programmes such as health
care for the poor, home care for the infrm, and
support for education at the elementary, high
school and college levels (Crotty, 2012,97)
California is in a state of permanent crisis
(Bardhan and Walker, 2011,317)
[San Bernardino] is a living laboratory for
how a Chapter 9 municipal bankruptcy
works in California (MacDuff, 2013,np)
What happens in Stockton will be a bell-
wether for other cities that are in fnancial
distress Stockton has already taken the
center stage in a long line of cities in crisis
Everyone is following it because it does have
implications for how the game gets played
beyond Stockton (Smith, 2013, np, emphasis
added)
The title of this paper paraphrases Steve Duran,
the Hercules city manager. Located north east
of San Francisco, this city of just under 30,000
has been left with an annual debt repayment
of $20 million with the winding down of its
Redevelopment Agency (RDA). The city was
already struggling fnancially, due to federal
budget cuts and a sharp decline in the value
of its housing stock and thus in its property

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82
Davidson and Ward
tax base. Its general fund had dwindled from
$18 to $10.5 million over the last few years, for
example. The statewide closure of 425 RDAs
on 1 February 2012 by Governor Jerry Brown
only made matters worse, and led the city of
Hercules to lay off one hundred of its workers,
about 40% of its total workforce. The city has
also had to generate various reports to docu-
ment how it has spent the revenue generated
by the RDA, as the state has sought to claim
unspent funds and those who had provided
fnancial guarantees for the Agencys bonds
have sought repayment reassurances. These
revealed, amongst other things, that in April
2012 the RDA sold a four-storey apartment for
$425,000, having spent over $38 million on it
over the years, while it also had to cease a $20
million youth stadium project when the drop
in property values meant that the project was
no longer fnancially viable. More generally,
the State Controller, John Chiang, commented
that During my time in offce, this could be
the worst set of city accounting records Ihave
seen. The Citys books were so poorly managed,
that I must question their use of every single
federal and state dollar granted to the City.
In the context of a wider regime of light touch
accounting and record keeping this is some
claim! As of late 2013 Hercules hovers on the
brink of bankruptcy, seeking out new ways of
delivering basic services while managing the
repayment of various general fund and redevel-
opment bonds. The RDA successor agency, that
is the city government of Hercules, meanwhile
struggles to manage the legacy of bad debts and
projects bequeathed toit.
Hercules is not alone, of course. Other cities,
including, Lincoln, Milpitas, San Bernardino,
Stockton and Vallejo are at various stages of
fscal distress. Table 1 outlines some general
characteristics of these cities and their current
precarious situation.
Each has either fled for bankruptcy
through Chapter9or is actively pursuing aus-
terity strategies just short of bankruptcy. While
there are elements of mismanagement in each
case, there are also strong shared systemic fea-
tures. Post Proposition 13 many Californian cit-
ies used RDAs to speculate on future growth.
Speculative urbanism was system wide. Large
amounts of money were borrowed against
future revenue streams. Bonds were issued
against these streams, to add to the General
Obligation Bonds. Consequently, these cities
found themselves with unserviceable levels of
debt when the 2008 fnancial crisis struck and
the decision was made to close down RDAs in
2012. There is evidence to suggest they are not
alone in either California (California Public
Policy Center, 2013; Walters, 2013) or the rest of
the USA (Hujer, 2013; Plummer, 2013).
Figure1 reveals that Californias RDAs had
generated over $30 billion of debt when they
were closed down on 1 February2012.
While this was the end of the RDAs in
California, it was not the end of their conse-
quences. Organisationally, cities and counties
continue to wrestle with the succession plans.
In most cases the debts, liabilities and projects
of RDAs were taken over by city governments.
Not in all cases however. Los Angeles was a
noticeable exception. The city government
declined the offer from Governor Jerry Brown,
with the LAs City Administrative Offcer,
Miguel Santana, claiming that we cant afford
it (Zahniser and Garrison, 2012, np). Instead
the RDAs 192 employees were laid off and a
Designated Local Authority was appointed.
Moreover, around the state the disentan-
gling of RDAs from the various fnancial and
legal arrangements and entanglements they
had with other city, county, state, federal and
international private and public economic and
fnancial actors is likely to continue to exercise
many stakeholders for the next decade or so.
Financially, the fallout of their cessation also
continues to reverberate around California.
The States fnancial team has gone from city
to city auditing the books of the RDAs, look-
ing for revenue it can claw back to offset its
own precarious fnancial situation. For despite
announcing a balanced budget for 20132014

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83
Austerity urbanism, California and fscalcrisis
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84
Davidson and Ward
(Luhby, 2013), California continues to be fs-
cally dysfunctional (Bardhan and Walker, 2011,
317). Indeed, according to Oliff etal. (2012, 5),
Californias shortfall is 16.2% of its 2013 fnan-
cial year budget, or $15 billion and hence why
emptying the accounts of the states 400-plus
RDAs was attractive to Governor JerryBrown.
This paper explores the current plight of a
number of Californian cities in the context of
the systemic emergence of speculative urban-
ism as the modus operandi since the early 1980s.
Our argument is two-fold. First, that the last
four decades have seen US city governments in
general become ever more entrepreneurial and
innovative with regard to economic develop-
ment (Harvey, 1989). Cities have had to indulge
in ever more risky forms of speculative urban-
ism, understood here as the ways in which cit-
ies speculate on future economic growth by
borrowing against predicted future revenue
streams to make this growth more likely. They
thus seek to make a particular future realizable
by borrowing against it. This has occurred in the
context of the broader emergence and exten-
sion of neo-liberal urbanism. This emphasised
an always-contradictory process [of]
evolving/rolling programme of restructuring
(Peck and Theodore, 2012,179).
Our second argument is, however, that as the
wave of recent bankruptcies reveal, Californian
cities were at the forefront of this speculative
urbanism. Afforded very little fscal wiggle
room due to the introduction of Proposition 13
in 1978which capped local property taxes
and required a two-third of vote of the legisla-
ture or the citizenry to increase taxes (Bardhan
and Walker, 2011, 316)it was herethrough
the ardent stimulation of development and
consumption, oftentimes via the use of RDAs
and Tax Increment Financing (TIF)that cit-
ies speculated on future growth, borrowing
against possible but not guaranteed future rev-
enue streams (Weber, 2002, 2010). As a conse-
quence, cities were gambling on, and eventually
became habituated to, endless growth (or at
least growth for 2025years, which is the length
of the bonds that were taken out to instigate
economic development). As the last 5 years
have demonstrated this over-reaching has come
at a highcost.
The next section of this paper turns to outline
the general contours of speculative urbanism,
paying particular attention to the increasing use
by cities of revenue bondsthose not backed
by the full faith and credit of a municipalitys
tax base (Hackworth, 2002). The third section
turns to the example of California. We outline
the ways in which the states city governments
speculated on future growth, using consequent
revenues to fund a number of schemes. Some
bankrolled redevelopment projects which met
the statewide blight and but for criteria. That
is, but for the redevelopment project the prop-
erty taxes would not rise, there would be no
increment that could then be captured, partly
used to pay down the bond and partly used
to fnance other schemes. Revenues were also
used to other ends, which did not comply with
the statewide legislation.
Put simply, in an age where the scope for
Californian cities to increase revenues was
increasingly constrained, they turned to
Figure 1. The long-term debt of Californias redevelop-
ment agencies.

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Austerity urbanism, California and fscalcrisis
speculative mechanisms in order to generate
funds for both local services and discretionary
spending. In some cases this included paying
for services that might normally have been
expected to have been covered by the general
tax base, such as the pensions and salaries of
public employees. The fnal section of the paper
examines institutional and fnancial restructur-
ing in Vallejo, California, as an exemplar of
todays speculative urbanism under conditions
of austerity. In conclusion the paper makes
three arguments. First, municipal bankruptcies
in California are redefning the stakes of US
urban politics, creating a political landscape
where just the threat of going broke can be
used to impose draconian neo-liberal reforms.
Second, as the federally mediated urban cri-
sis rolls out, city services and operations once
thought beyond the reach of neo-liberalisation
are now becoming fair game. Third, after years
of speculative urbanism a number of cities
appear ill-prepared fnancially to deal with the
current urban (fscal) crisis.
Entrepreneurial speculative
urbanism
Just for a moment it looked like neo-liberal
urbanism would be no more. The free mar-
ket project is on the ropes declared Peck etal.
(2009a, 94). The fnancial crisis that struck frst
towards the end of 2007 appeared to signal the
end of the belief that open, competitive and
unregulated markets, liberated from state inter-
ference and the actions of social collectivities,
represent the optimal mechanism for socioeco-
nomic development (Peck etal., 2009b, 50). Yet
this moment was relatively short lived. Talk of
alternatives proved to be just that: talk. Quickly
neo-liberal business as usual was restored. Over
the last 5years what has been witnessed across
the cities of the global north is nothing short
of extreme austerity urbanism (Gray, 2012;
Mayer, 2013; Peck, 2012), or what Peck (2012,
631)refers to as the urbanisation of neoliberal
austerity. This has involved state and local
governments and cities in particular being
exposed to the full force of austeritys extreme
economy (Peck, 2012, 628). Echoing the argu-
ment of Peck etal. (2009b, 57, original emphasis)
that cities have become strategically impor-
tant arenas in which neo-liberalising forms of
creative destruction have been unfolding, our
argument is that the speculative component of
this neo-liberalising of cities left many of them
horribly exposed to the vagaries of the fnancial
and housing markets. This exposurewhich
allowed cities a degree of fnancial fexibility,
as they took risks with as yet unrealised rev-
enue streamscan be summarised along four
restructuring features of entrepreneurial specu-
lative urbanism. These general tendencies are
just that, general. They are not constituted or
expressed uniformly across space but are rather
mediated across a range of geographical scales
through various institutional and organisational
prisms. However, their defning and DNA-like
characteristics can be summarised as follows:
Restructuring of inter-governmental relations:
In this the federal level has downloaded a num-
ber of responsibilities, governing at a distance
through the establishment of various indicators,
at the same time as the limited federal and state
level monies were used to incentivise partner-
ships with the private sector. This has meant a
number of cities have become more dependent
on own-source revenues (Weber, 2002,190).
Restructuring of the logics of governmen-
tal decision-making: In this, many cities have
developed more speculative mechanisms to
fnance current expenditure through borrow-
ing against predicted future income revenues.
In the process this has changed the calculations,
logics and rationalities of city government and
other private and public actors involved.
Restructuring of public fnance: In this the
federal support for local activities and services
as part of a wider commitment to redistribution
has been dismantledslowly and unevenly
across spacewith localities establishing new
mechanisms for generating and retaining cur-
rent and predicted revenue streams.

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86
Davidson and Ward
Restructuring of risk allocation: In this, the
risk and its associated management has been
downloaded to localities, with the withdrawal
of a federal safety net exposing localities to a
range of forces and pressures.
The outcome of these general tendencies
has been that a number of US cities have been
left teetering on the brink of fnancial crisis
(Plummer, 2013). Unevenness in capacity
which has always been present in the countrys
federalised fscal systemhas been rendered
more pronounced, as those cities that have faced
the greatest pressure to downsize their work-
force are also those that face the greatest chal-
lenges in terms of populations disadvantaged by
the fscal crisis. Some cities have even gone as far
as to fle for bankruptcy. These include Central
Falls, Rhode Island, Harrisburg, Pennsylvania,
Jefferson County, Alabama, and more recently
and perhaps infamously, the city of Detroit.
However, California has seen the most bank-
ruptcy flings, is the state with the second worst
credit rating in the nation and is where the debt
almost trebled in the 6years prior to the fnan-
cial crisis (Summers and Randazzo, 2008). It is
to this state that the paper now turns.
Contours of Californian speculative
urbanism
Luck, now, as well as idleness or inadequacy,
can lose you a job. Luck can wipe out a life-
times savings, can double or halve the cost
of a holiday abroad, can bankrupt a business
because of some unpredictable change in
interest rates or commodity prices or some
other factor that used to be regarded as more
or less stable and reliable (Strange, 1986,2)
Investors beware. Armageddon for muni
bond holder lies ahead, and it could hit you
like an iceberg (Zamansky, 2013, np)
The mantras of free and unfettered markets and
the small state became engrained in California
state and municipal politics from the late 1970s
onwards (Lustig, 2010). To a large extent, the
neo-liberal reforms imposed in California mir-
ror those in other places (Bardhan and Walker,
2011). Cities became less reliant on funds redis-
tributed from federal and state governments
and, consequently, had to devise revenue gen-
erating mechanisms themselves (Harvey, 1989).
As responsibilities were downloaded from
federal and state levels, cities were required to
fund more local services and to fnd innovative
ways of supporting their vulnerable communi-
ties (Peck and Tickell, 2002). In this section we
briefy describe the contours of this neo-liberal-
ised urban governance landscape, outlining the
conditions that led to a number of Californian
cities becoming avid gamblers and speculators.
Revenues
Since Reagans federal reforms in the 1980s
(some of the impulse for which came from the
Californian Proposition 13 reforms in the late
1970s), federal government transfers to munici-
palities have halved (Wildasin, 2010) and many
states have sought to do no more than maintain
funding levels, generating signifcant gaps in
city budgets. In California this reliance on state
funding was made more severe by the passing
of Proposition 13 in 1978. The capping of gen-
eral purpose property tax rates at 1% and the
requirement for two-thirds of the voting citi-
zenry or legislature to increase property taxes
effectively took away from city government one
of its most important ways of increasing reve-
nue. The effects were immediate. State revenues
were cut by 57% in 1979, leading to 100,000 pub-
lic sector layoffs (Keil, 1998; Goldberg, 2010).
Coupled with declining federal resources, cit-
ies around the state were faced with a systemic
fscal crisis, and began to explore other ways
of generating revenues (Bardhan and Walker,
2011). Pay as you use replaced pay as you go,
as cities turned increasingly to the capital mar-
kets (Kirkpatrick and Smith, 2011), to the point
that some have recently claimed that the state
is drowning in debt (Summers and Randazzo,

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Austerity urbanism, California and fscalcrisis
2008). Subsequent revenue-restricting reforms
at the state level have meant Californian cities
have been impelled to pursue revenue-raising
activities in order both to meet the most basic
needs of its communities and to pursue related
economic development strategies. The latter
include, for example, the granting of franchise
rights, permits and local sales taxes to produce
new and/or enhanced revenue streams. Many
of these revenue streams are tied to levels of
consumption, making them particularly sensi-
tive to economic cycles.
The two revenue sources that became widely
used across the state and that were tied to the
development-focused speculative actions of
municipalities were RDAs, their use of TIF and
their circumventing of any increase in prop-
erty taxes that would need to be agreed by a
two-thirds voting majority. However, as our
study of Vallejos bankruptcy illustrates, these
institutionalised development mechanisms,
and their particular uses, were derivative of a
speculation-driven form of urban governance;
as opposed to them alone encouraging specula-
tive forms of governance.
RDAs grew out of the post-Second World
War federal urban renewal program. The aim
of the post-Second World War Community
Redevelopment Act (1945) was to give state
agencies the ability to address urban blight
by offering state assistance and government-
backed fnancial incentives to stimulate devel-
opment. In 1951 the state voted to allow TIF.
This was unique at the time to California,
although it has subsequently been introduced
into every US state bar Arizona. This allowed
an RDA to designate an area as blighted,
using eminent domain if required. It could
then speculate on what extra or incremental
property taxes and sales taxes could be gener-
ated if it spent some money up-front on vari-
ous types of infrastructure. This could include
brownfeld clean-up, land purchase, new roads,
new sewerage systems for example. The up-
front expenditure would be fnanced through
a bond issue, not against the general fund but
rather against the projected incremental future
revenue stream that would be generated post
the investment. One consequence of TIF was,
however, that special districts, such as schools,
which received a proportion of local property
taxes, did not receive a proportion of the incre-
ment for the duration of the TIF, which would
often be between 20 and 25years (see Figure2)
While Californias cities were able to use
(and where deemed necessary, increase) local
property taxes to support the delivery of eve-
ryday services there was little use of TIF in the
state, and very few RDAs were established. For
example in 1977the year before Proposition
13 was passedthere were only a couple of
hundred RDAs and they received less than 2%
of statewide property taxes. Ten years later in
1988 the number of RDAs had doubled and
they were receiving approximately 6% of state-
wide property taxes. By 199820 years after
Proposition 138% of all statewide property
taxes were being collected not by city govern-
ments but by the 400 or so RDAs. Unable to
increase local property taxes, for many cities
RDAs and TIF was the only economic devel-
opment game in town. It was certainly the one
over which there was the least political or pub-
lic accountability and oversight. The kinds of
projects that RDAs undertook also changed
over the decades. Defnitions of blight became
stretched in the state, refecting a US-wide
redefnition of the term (Weber, 2002), as in
many cases the RDAs turned their attention
away from downtown and out to the suburbs.
The projects also grew in size, as city govern-
ments worked in tandem with their RDAs to
max-out on development and the revenue
streams it promised.
In practice, then, RDAs played the simple
but not uncontroversialrole of providing
cheap funding to property developers in order
to direct development into designated districts.
Using eminent domain powers, they became
signifcant political actors, kick-starting eco-
nomic development by issuing bonds against
predicted future revenue streams and using this

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Davidson and Ward
capital to encourage and fnancially incentiv-
ise developers and others with a stake in this
particular model of growth. The revalorisation
of commercial and residential project areas
via RDAs had a central role in making cit-
ies function in times of reduced redistributed
funds. By reinvigorating urban districts the city
could restore and/or increase property values
and occupancy levels, therefore boosting total
property tax revenues. Furthermore, a success-
ful RDA could use funds accrued through rev-
enue-raising project for the production of yet
more (re)development.
The success of many RDAsalthough not
all were successful (Jonas and McCarthy, 2009;
Kirkpatrick and Smith, 2011)led them to
become central contributors to city budgets.
They subsidised activities and services that
could not be funded out of the general tax
base. In Oaklandthe city over which the now
Governor Jerry Brown presided between 1999
and 2007for example, RDA income was fun-
nelled into central city funds in order to sup-
port, by 2012, the salaries of approximately
200 employees, including those in the mayors
offce and public works (Lee, 2012). The specu-
lative activities of RDAs therefore became an
important and normalised aspect to Californian
municipal governance, as did the generation of
debtin the form of issued revenue bonds
which required a buoyant economy in order
to generate the increment which would allow
them to be paiddown.
This redevelopment-led revenue raising was
paired with a more general reliance on prop-
erty tax revenues. With Proposition 13 limit-
ing any raises in property taxes to 1% of the
value of properties, many cities were left with
little option but to produce more (sub)urban
development in order to increase the property
tax base and collect construction-related rev-
enues (for example, permit fees). In the context
of Californias economic boom, this strategy
proved effective in many cities. As demand
for housing grew, particularly in and around
the states largest cities, the Californian econ-
omy supported more and more employment
(OKeefe, 2004) and property prices infated
to staggering levels (Glaeser et al., 2005), as
cities were able to collect growing amounts
Figure2. Tax increment fnancing.

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Austerity urbanism, California and fscalcrisis
of property related revenues. The speculative
housing boom in California therefore propped
up municipal government and, as such,
Californian municipalities had little interest in
putting the brakes on property development
and/or house price infation (Goldberg, 2010).
Expenditures
In the post-crisis period, the expenditures of
indebted Californian municipalities have come
under much scrutiny, both inside and outside of
bankruptcy courts. This scrutiny has brought to
light some of the ambiguities of municipal fnance.
When the city of Vallejo declared bankruptcy
in 2008, it had a total budget of approximately
$220 million. However, the citys bankruptcy
only concerned its $80 million General Fund.
This fund is primarily responsible for paying
public employees and supporting local services.
Most of its revenues come from property taxes
(23%), property transfer taxes (7%) local sales
taxes (20%), utility user tax (16%) and vehi-
cle license fees (12%). Other parts of the citys
$220 million budget include Enterprise Funds,
Water, Transportation, Marina Golf Funds,
Community Development Funds, Housing,
Redevelopment, and Mare Island, Public
Works Funds, Fleet Maintenance/Replacement,
Gas Tax and Capital Projects. These funds have
their own dedicated revenue and expenditures
and, for the main, are separate fnancial entities
from the General Fund. However, during the
recent bankruptcy court proceedings of Vallejo,
San Bernardino and Stockton, it has become
evident that the practice of allocating city funds
across various accounts differs between munici-
palities (Table 1). In Vallejo, the citys General
Fund revenues had for decades subsidised failing
redevelopment projects (Mialocq, 2008), even
though the city had been a relative conservative
user of TIF. However, in San Bernardino it has
been the General Fund (that is, public services)
that has been drawing on redevelopment funds
to maintain the citys basic functions (Mulvihill,
2013).
The breakdown of Vallejos general fund
demonstrates the ways in which its local services
became bound up with the economic perfor-
mance of the municipality. When urban rede-
velopment and consumption continue to grow,
the citys coffers are boosted (Hoene, 2004).
Consequently the city is able to improve the
compensation of its employees and improve its
local services. In some Californian cities these
growing city revenues became tied to its major
expenditure: wages and benefts in the form of
collective bargaining agreements (CBAs) with
public employee unions. Many Californian cit-
ies have seen employee compensation expendi-
tures track at around 7080% of total General
Fund revenues. As Californian cities enjoyed
years of rapid economic growth, their employ-
ees therefore collected higher salaries and gen-
erous benefts. This arrangement was facilitated
by binding arbitration and compensation for-
mulas that grouped proximate cities in order
to provide adjudicators with a benchmarking
mechanism. Public sector employees therefore
saw their salaries and benefts track together
according to regional conditions. For example,
Vallejos CBAs were based on a comparison
group of 14 cities in northern San Francisco Bay
region. Consequently, California cities relied on
continued economic growth to fulfl the obliga-
tions of 35yearCBAs.
As expenditures became linked to specu-
lative revenues in many Californian cities,
the business of urban governance therefore
become focused upon ensuring local growth
via fnancial mechanisms based on tenuous
promises of future value generation (Weber
2002, 190; Bardhan and Walker, 2011; also see
Harvey, 1989). Although not uniquethere
is evidence that this was a systemic feature of
US neo-liberal urbanisation (Kirkpatrick and
Smith, 2011)in California this speculative
urbanism took an acute form due to strict state-
wide fscal restrictions, regional geographies of
economic growth, rampant housing speculation
and strong public sector labour unions (Sowell,
2009; Walters, 2010; Bardhan and Walker, 2011).

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Davidson and Ward
These conditions went some way to produce a
municipal governance landscape where city
councils and planners took part in speculative
activities in order to maintain basic levels of
service. In this context, where the line between
hedge fund gamblers and city managers some-
times became blurred (Jorion, 1995), a sudden
economic downturn created a fscal and gov-
ernmental crisis of great severity. Consequent
attempts by municipalities and the state to
resolve this fscal have been equally sobering.
Recalibrating for austerity in
California
The austerity reforms that continue to be
rolled out across California represent a frontier
of neo-liberal recalibration, we would claim.
Others have argued that it is the fountainhead
of the Great Recession (Bardhan and Walker,
2011, 303). Our claims are lighter on superla-
tives, perhaps, but are potentially no less pro-
nounced. Collectively the reforms demonstrate
changes to the urban political landscape that,
if introduced into other states and jurisdic-
tions, look set to extendif not fundamentally
remakeneo-liberal urbanisation. This is an
extended landscape of austerity urbanism in
which the dumping of risks, responsibilities,
debts and defcits, to the local scale (Peck,
2012, 650)produce an increasingly unequal and
unstable urban landscape, in which those who
govern cities fnd themselves with fewer levers
to pull and under the ever more disciplining
effects of the fnancial markets. In this new
Californian normal, established institutional
notions of mutual independence have begun
to be recalibrated, with states squeezing the
ability of city governments to generate revenue
streams, through for example the abolition of
RDAs and their use of TIF, at the same as cities
themselves have begun to redefne the notion
of municipal failure.
Speculative risk can be managed in numer-
ous ways by city governments, given their fscal
powers and ability to reform city programmes
and services. The management of risk is also
built into municipal accounting practices,
whereby the separation of revenue streams
and expenditures within city budgets allocates
risk into defned accounting spaces (Gauthier,
2005). Post-crisis austerity reforms in California
are changing how this municipal fnance matrix
operates and the consequent allocations of
speculative risk. In this section we outline the
ways in which Chapter9 bankruptcies are piv-
otal to this regressive reorganisation, paying
particular attention to the example of the city
of Vallejo.
Under Chapter 9, Title 11 of the United
States Code, cities are permitted to declare
bankruptcy if states allow. At present only 28
US states allow their municipal governments to
seek Chapter9 protection (Spiotto, 2012). This
number includes a variety of authorisations: 12
specifcally authorise, 12 conditionally author-
ise, three provide limited authorisation, and
one state (Iowa) allows certain exceptions to
a general prohibition. The remaining 22 states
either prohibit or have no specifc instructions
relating to Chapter9 (ibid.) Due to the depths
of its current municipal crisis, California has
seen the nations most Chapter 9 bankruptcy
applications. As these bankruptcies are unfold-
ing, we are witnessing new interpretations of
Chapter 9 law being implemented, a conse-
quent redistribution of municipal debt burdens
(and consequent state responses), an increased
politicisation of municipal fnance and new
depths to municipal fnancial failure.
In May 2008 the City of Vallejo became the
frst post-crisis Chapter 9 applicant. Its fling
was unprecedented. Chapter9 bankruptcy leg-
islation had been originally designed as a medi-
ation process, whereby any debt readjustment
had to be agreed with the citys major creditors
(Patterson, 1942). The legislation therefore pro-
vided no basis for cities to remove or restruc-
ture debt obligations without creditor approval.
As a consequence Chapter9 was rarely used by
municipalities to deal with structural fnancial
problems. For the most part Chapter9 has been

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Austerity urbanism, California and fscalcrisis
used to restructure special enterprise zones
or utility projects where dedicated revenue
streams had not delivered forecast incomes.
Vallejo challenged this reading of bankruptcy
law since it did not gain the approval of its
creditors (Trotter, 2011). Instead it claimed
its major creditors were making unreasonable
demands on it, leaving the city with no option
but to restructure without their consent. In
this case, as with all cities in the US, the major
creditors to general operating expenses are its
current and previous employees, in the form of
their wages, health benefts and pensions.
On the 13th of March 2009, a District Court
judge granted Vallejo Chapter 9 bankruptcy
protections based on the criteria that its cash
fow situation did not allow it to pay its credi-
tors and good faith negotiations with unions
had failed to produce a reasonable solution.
The signifcance of this decision extended far
beyond Vallejo, since it created the opportunity,
pending court approval, for cities to unilater-
ally restructure debts, including the voiding of
CBAs and bond repayments. The Vallejo judg-
ment therefore radically changed the prevailing
interpretation of Chapter9 bankruptcy law. The
consequences of this judgment are still rever-
berating around the state and further afeld.
In California, Stockton and San Bernardino
are both currently pursuing Chapter 9 read-
justment plans that are poised to shake the
foundations of Californias pension schemes,
municipal bond markets and organised labour.
In Vallejo the impacts of Chapter9 restruc-
turing are still unfolding. Post-bankruptcy the
city continues to run defcits (City of Vallejo,
2012). Interim CBAs have served to push
labour negotiations down the road, although
the efforts the city went to in order that it
could restructure its CBAs did not stop it from
overlooking CBA renegotiation deadlines in
2012, resulting in the automatic extension of
the generous interim agreements. However
the city has removed binding arbitration from
its City Charter, ensuring that pending con-
tract renegotiations with unions will likely
result in industrial action. In the course of
Chapter9 restructuring, Vallejo did cap health
benefts to retirees at $300 per month per
capita (Walsh, 2011). These benefts had pre-
viously been costing the city approximately
$1500 per retiree, per month (ibid.). It also
established a series of concessions from bond
holders and labour unions, the latter limiting
wage increases and cutting mandatory staff
and service levels.
It is therefore unsurprising that the
Californian state government and related agen-
cies have begun to assert their sovereign powers
as municipal fscal collapse threatens to cause
signifcant unrest and/or remake higher levels
of government. The Californian state pension
agency, CalPERS, has been active in attempting
to protect itself from municipalities reneging
on payments. When Vallejo entered bankruptcy
and had the opportunity to renege on its pen-
sion obligations, the citys then fnance director,
Robert Stout, was informed by CalPERS that
any such move would result in endless legal
action (Walsh, 2012). No small threat for a cash
strapped city, coming as it did from a $200 bil-
lion pension fund (Malanga, 2013).
The state government has also legislated
to temper potential disruptions emanating
from Chapter 9 flings. In 2012, state legisla-
tors voted positively on Assembly Bill 506. The
bill requires a municipality to participate in a
60-day neutral evaluation process or declare
a fscal emergency that jeopardises the health
and well-being of its citizens before seeking
protection under Chapter 9. Although some
have suggested the bill does little to alter the
existing Chapter 9 process (that is, it already
requires good faith negotiations with credi-
tors), the legislation is indicative of the con-
cern in Sacramento over the extreme austerity
measures being formulated in cities such as
Vallejo, Stockton and San Bernardino.
Concerns about the fallout of Californias
municipal bankruptcies are also present in
municipal bond markets. Although Vallejo
did not seek to stop bond repayments, fearing

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Davidson and Ward
that credit downgrades would impact its future
borrowing options, others have been less con-
cerned about such implications. While a few
Californian cities stopping bond repayments is
insignifcant in terms of the total $2.7 trillion
municipal bond market, such actions are nev-
ertheless causing signifcant concern in fnan-
cial markets. Municipal bonds have long been
considered a safe investment tool, given the pre-
dictable revenues and expenditures of cities and
implicit state backing. Yet recent non-payments
by fscally beleaguered cites like Stockton and
San Bernardino have the municipal bond mar-
ket asking whether levels of risk should be rated
much more highly, with some going as far as to
claim that investors could face potential munic-
ipal bond Armageddon (Zamansky, 2013).
With many cities reliant on bond markets,
there has been a requirement within city gov-
ernment to designate and allocate revenue
streams in order that investments can be rated
and offered to the market (Hackworth, 2002).
Yet, just as the closure of RDAs has redis-
tributed risk within municipalities, Chapter 9
bankruptcies have undermined prevailing
understandings of municipal accounting and,
consequently, the fnancial risks associated
with municipal debt. Municipal bonds are con-
sidered conservative, low risk investments not
only because they have largely predictable rev-
enues and expenditures, but also because the
legal structures of municipal fnance restrict
the transfer for monies between funds to situ-
ations where a return of borrowed monies can
be assured within the fscal year (Mayer, 2008).
As Vallejos bankruptcy claim was contested
in the courts, this understanding of municipal
fnancial regulations was much debated.
For the fscal year ending in June 2007,
Vallejo had a total cash balance of $211 million
in reserves. Only a proportion of this was in the
soon-to-be-bankrupt General Fund. Some $61
million was administered by legally separate
authorities, such as the Vallejo Sanitation and
Flood Control District, and the Marine World
Joint Powers Agency (Tanner et al. 2008: 12).
Restricted trust accountsprimarily subject
to debt covenantsaccounted for $48 million.
An additional $13 million was held as fduciary
funds for the citys fve improvement districts.
The remaining $89 million in revenue was allo-
cated to the General Fund (ibid.). When the
city fled for bankruptcy, it was specifcally fling
for the bankruptcy of the GeneralFund.
During bankruptcy hearings, the unions
representatives argued that the city could fnd
monies to cover General Fund shortfalls from
other accounts in the city budget, just as it had
done in previous years (Mialocq, 2008). This was
challenged by the citys fnancial manager, who
argued that any such transfers would be illegal
if the city could not demonstrate an ability to
repay transferred funds (Mayer, 2008). This
issue also drew the attention of the citys major
bond holders, who refused to renegotiate debt
repayments in the absence of an assurance that
the General Fund could become solvent with-
out continual draw-downs from other funds. So,
Vallejos biggest bond-related creditor, Union
Bank, agreed to restructure its debts during the
course of the citys bankruptcy, taking a 40%
reduction in repayments (York, 2011).
Bond markets, via their rating of risk, act
on the presumption that different municipal
accounts remain largely independent (McGee,
2011). So, for example, when they fnance a
sewer project the assumption is that suffcient
revenues associated with the project will be held
within that account. The prospect of moving
funds across accounts therefore changes calcu-
lations of risk. This political problem has only
intensifed in many cities as RDAs have become
incorporated with general city budgeting.
The closure of the Vallejo RDAalong with
over 400 others across the stateon the 1st
of February 2012 further worsened the citys
already ailing fnancial situation. However, the
impact of RDA closure was less severe in Vallejo
than it was in, for example, San Bernardino.
Why? Well, because as we have noted earlier,
the city had been a relatively conservative user
of TIF and property values had grown modestly

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Austerity urbanism, California and fscalcrisis
in recent years compared to other areas of the
state (Interview 65, April 2012). Vallejo city
government and the RDA also had a strained
relationship. Unlike the majority of cases
across the state, the city retained its proportion
of the relatively small increment that had been
generated (Interview 73, April 2012). Indeed,
the city government regularly subsidised the
RDA (Mialocq, 2008). Not only did this reduce
the budget of the RDA; it also signalled to
potential investors a lack of unity in terms of
economic redevelopment strategy. This is per-
haps best refected in the failure of the RDA to
deliver the redevelopment of the Mare Island
naval yard. Closed in 1996, the RDA had over-
seen various attempts to redevelop the land. All
failed. As a result the TIF revenue stream was
just over $2 million per annum when the RDA
was wound-down.
Vallejo therefore failed to utilise TIF and
RDAs for signifcant speculative gains and, as
such, could not incorporate these prospective
incomes into its budgeting. Indeed, the opposite
was true; the highly speculative activities of its
RDA, such that they were, cost the city money.
The factional local political context therefore
forced the city government to rely on other
sources of speculative income, such as prop-
erty development fees and local consumption
taxes, to boost revenues and support local ser-
vices. When Vallejos property market crashed
and housing construction abruptly slowed in
2008, the past failures of the citys RDA may
well have served to (relatively) limit the imme-
diate budgetary impact of economic recession.
However, the city found itself in the same place
as many others: facing a curtailing of specula-
tion-fuelled revenue growth and escalating long-
term spending and debt repayment obligations.
As many cities in California face fscal col-
lapse, they are therefore being drawn to politi-
cal decision-making that requires them to
identify winners and losers. In Vallejos case,
the city government reduced health benefts
and left pension and bond obligations largely
in place. However more dramatic changes are
being made in Stockton and San Bernardino. In
both these cities, places where RDAs have sub-
sidised General Fund operating expenses, city
councils have voted to stop payments to bond-
holders. In what are being described as test
cases in the titanic battle over whether munici-
pal bondholders or current and retired employ-
ees will absorb most of the pain when a state
or local government goes broke (Reid, 2013)
these cities are deciding who pays for specu-
lative failure. This, as it occurs within newly
minted post-Chapter 9, post-RDA closure
budgets, is recasting the fnancial landscape of
urban governance in California.
Whilst places like Vallejo, Stockton and San
Bernardino formulate austerity budgets, the
consequences of failure within the system of
speculative urbanism appear to be reaching
greater depths. When Vallejo entered bank-
ruptcy during 2008, the following 2 years fea-
tured a host of news articles describing the
citys failures. Storylines focused on the grow-
ing problem of prostitution and the increasing
number of medical marijuana dispensaries dot-
ted around the citys downtown. On the 22nd of
August 2011, Bloomberg news ran the headline
Prostitutes Flood Vallejo as Bankrupt City
Slashes Police Force by a Third. The headline
refected the city polices austerity-led decision
to only respond to emergency calls and dra-
matically cut regular patrols. Indeed, through-
out 20089 residents complained that calls to
the Police Department regularly went to voice-
mail (Interview 28A, October 2012). Similar
cutbacks have been implemented in the fre
department, where stations have been closed
and the number of frefghters signifcantly
reduced (Interview 3, July2010).
With local emergency services stretched and
residents increasingly uneasy with levels of ser-
vice, community relations have become tense.
During 2012 Vallejo police shot and killed six
people in the city. On each occasion police
offcers claimed that the use of deadly force was
justifed. The deaths have highlighted the racial
divides within the town. When residents packed

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94
Davidson and Ward
into city hall on 11 September 2012 to protest
the conduct of Vallejos police, the majority
of attendees were racial minorities. The sister,
Cindy Mitchell, of one of the shooting victims,
Romero Mitchell (killed 2 September 2012,
reaching for a pellet gun in his car), spoke at
the meeting about the mischaracterisations of
her brother that had circulated after his death:
you guys are slandering my brothers name,
calling him a parolee when he was never on
parole, never been to prison, never sold drugs,
never, okay! Other residents interviewed
complained that their working class neighbour-
hoods had become policed by shoot happy
cops who only cared about protecting each
other and their big paychecks (Interview 34B,
September2012).
Middle-class residents have not been exempt
from austerity, however. On Mare Island, resi-
dents who bought houses in new bourgeois resi-
dential districts constructed in the early 2000s
saw two fre houses close in 2010 as the city
implemented bankruptcy-related cutbacks. The
closing of Station 28 on Nimitz Avenue, located
on Mare Island, meant the new residents of the
peninsula development now have no local emer-
gency services and face much longer response
times. Although the fre unions challenged the
legality of these cutbacks, they have remained
in place leaving middle-class residents in Mare
Island without previously mandated levels of
emergency services. Residents complained that
they still pay a supplemental local tax that was
intended to support these services (Interview
2C, September 2012). This situation will become
more precarious when a local bridge is closed for
repairs, leaving the emergency services an addi-
tional two miles to travel to Mare Island.
Vallejos descent into bankruptcy has there-
fore redefned levels of service provision. Police
and fre services are run at bare minimums,
answering only emergency calls. The resulting
situation has witnessed growing intra- and inter-
community tensions across the city, as residents
blame the citys fnancial failures for shootings,
high crime rates and house fres. Vallejos fscal
crisis is therefore redrawing the depths of spec-
ulative failure: fre and police services are being
reduced to levels previously thought unsafe;
local services, such as libraries and community
programmes have been reduced or removed.
The costs of being a failed entrepreneurial
and speculative city appear greater than ever
before.
Conclusion
Cities are where austerity bites (Peck,
2012, 629)
According to Gelinas (2010, np) [t]he uncom-
fortable truth is that as municipal debt grows, the
risk mounts that someday it will be politically,
economically and fnancially worthwhile for
borrowers to escape it. Writing after the bank-
ruptcy of Vallejo and before San Bernardino
and Stockton followed suit, this piece in the
City Journal at the Manhattan Institute criti-
cised investors who continue to value munici-
pal bonds despite the evidence that many cities
and counties have overstretched themselves.
The argument was a simple one. Investors are
kidding themselves if they think that states and
cities cant fail. They can and they do. Agrow-
ing number of Californian cities have either
declaring bankruptcy or have threatened to
do so as a means of gaining leverage over debt
holders, labour unions and state offcials. This
is a high stakes game. The defcit crisis cre-
ated an opportunity for conservative state gov-
ernments to both slash government spending
and seriously weaken or destroy public sector
unions, according to Crotty (2012,97).
While it is likely that few on either the left
or the right would argue that California is a
conservative state, nevertheless, what we are
witnessing currently within it are city gov-
ernments implementing locally what was
defeated nationally (Davis 2013, 10). So,
the services that are now being targeted, in
places such as Vallejo and San Bernardino, in

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95
Austerity urbanism, California and fscalcrisis
the name of austerity are those that remained
largely untouched by past waves of neo-liberal
outsourcing and privatisation. Fire and police
professionsand their associated pay and pen-
sionhave been targeted by city offcials in
order to cut public expenditure to the point
where it balances out with shrinking property
tax revenues. Meanwhile, a range of services
are being cut: lights being turned off, schools
being closed and streets being left uncleaned.
As the costs of the fnancial crisis are divided
between different levels of government (see
Peck, 2012), many cities are ill-prepared to deal
with any newly imposed responsibilities. When
the Californian state government closed its
RDAs, a number of the states cities faced fs-
cal failure. Already addicted to growth and bur-
dened with high levels of debt, they have found
themselves with few reform options. When
Vallejo was granted Chapter 9 eligibility in
2008, it offered a way forward for beleaguered
cities: bankruptcy protected reforms to CBAs
and bond debt. As the subsequent Chapter 9
flings of San Bernardino and Stockton are
demonstrating, this combination of urban fscal
crisis and new legislative context has created a
new regime of action.
Speculative urbanism under austerity is cre-
ating a turbulent and insecure political land-
scape. Whilst those cities that have pursued
bankruptcy have brought crisis to retirees in
ill-health (that is, Vallejo) and slashed the value
of bond holdings (that is, San Bernardino and
Stockton), these cases are also changing the
stakes of municipal politics. What were once
sacred cows are now fair game, enabling cit-
ies in fscal crisis to threaten creditors with
unilateral changes that would, a short time
ago, have been unthinkable. This has not gone
unnoticed to the purveyors of neoliberal ideol-
ogy such as the Manhattan Institute (Gelinas,
2013) and Heritage Foundation (Tucker, 2013),
both of whom have cast municipal bankruptcy
as an indicator of liberal governmental fail-
ure and have made the case for further neo-
liberal reform. City hall has therefore once
again become a key venue of class politics in
the age of austerity, the place where attempts to
resolve a structural economic crisis are playing
out, but where local decisions are informed, if
not sometimes determined, but a legacy of fs-
cal calculations make in reference to global
fnancial markets.
Acknowledgements
The authors acknowledge the work of the journal
editors, the reviewers and all of those who gave gen-
erously of their time on these projects. This paper
draws upon no funded research. The usual disclaim-
ers apply.
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