Oakland city officials have discussed the possibility of declaring bankruptcy to deal with the city's massive budget deficit, according to the Chron. The idea has some merit, especially if the $67 million federal grant for policing doesn't come through. Oakland's main problem is high employee salaries and benefits that it can no longer afford, particularly in the police and fire departments. But the city can't cut worker compensation significantly without union approval. As a result, Oakland may be forced to lay off large numbers of people and make painful cuts in services. In fact, without the federal grant, Oakland may be have to lay off more than 200 cops, which is untenable in a city with so much crime. But bankruptcy could change that, allowing the city to get out of burdensome union contracts and avoid more layoffs and service cuts.
But there's a big downside to bankruptcy. It carries the stigma of failure, and it will further erode the city's reputation and its financial standing. As a result, the city shouldn't seriously consider filing for bankruptcy unless that federal grant doesn't come through. The city should know the answer to that question in late August or early September.