Maywood, a small working-class community south of downtown Los Angeles, plans to lay off all its employees, disband its Police Department and turn over its entire municipal operations to a neighbor - an action that appears to be without precedent among California cities.

Maywood lost its insurance partly because of claims against the Police Department. The L.A. County Sheriff's Department will patrol the city. (Gina Ferazzi / Los Angeles Times / June 22, 2010)

Several cities in the state have said that they are close to bankruptcy because of the sharp drop in sales and property tax revenues caused by the deepest recession in decades. But experts who track California cities say Maywood is the only case they know of in which a city has dismissed all top positions except for the city manager, city attorney and elected officials. Under the plan adopted by the City Council on Monday night, council members would continue to be paid to set policy, but all services would be contracted out.

"Most cities would generally maintain a certain workforce," said Sam Olivito, head of the California Contract Cities Assn. Vallejo, in Northern California, filed for bankruptcy in 2008, but City Hall and the Police Department continued to operate independently.

Maywood officials said they had no choice but to adopt the drastic plan.

Maywood's $10.1-million general fund budget has a deficit of at least $450,000, officials said. Beyond that, the city has been unable to obtain insurance because of a history of lawsuits, many involving its Police Department, which also patrols Cudahy. Operating without insurance would make even routine government services highly risky.

"We're limited on our choices and limited on what we can do," Councilman Felipe Aguirre said. "We don't want to file for bankruptcy. We don't want to disappear as a city."

Aguirre said filing for bankruptcy was not an option for Maywood because its problems were related specifically to insurance coverage and not cash flow.

But during a contentious City Council meeting that stretched late into Monday night, opponents of the plan accused council members of managing the city incompetently by failing to maintain the city's insurance coverage.

"You single-handedly destroyed the city," Lizeth Sandoval, the city treasurer, told the City Council.

Last month, the California Joint Powers Insurance Authority notified Maywood that it was terminating general liability and workers' compensation coverage because the city posed too high a risk. A large number of claims filed against the police were a significant factor in that decision. Jonathan Shull, chief executive officer of the insurance authority, said Maywood was the first city to have its insurance cancelled by the group. The insurer acted after Maywood failed to make basic improvements the insurer had mandated, including hiring a permanent city manager, he said.

"Maywood has had a rather challenging loss history in the last few years," Shull said.

The action is yet another blow for the predominantly Latino city of 45,000 residents densely packed into about 1.2 square miles in the heavily industrial southeast part of Los Angeles County. Officials estimate about half the city's residents are illegal immigrants.

Under the city's plan, the Sheriff's Department will take over patrols. The neighboring city of Bell will take over other municipal services, including staffing Maywood's City Hall, saving the city an estimated $164,375 a year, officials said. The changes would take effect July 1.

Contracting with Bell is the most cost-effective way to ensure that residents still get basic public services, Aguirre said. "Our streets will be cleaned, our potholes will be filled, this is not affecting any of that," he said.

Maywood's acting city manager, Angela Spaccia, declined to comment on the vote. She also declined to make employees available to talk with the media. Before taking the Maywood job, she was the assistant city manager of Bell.

Bell Mayor Oscar Hernandez said the deal would be financially beneficial for Bell - though that was not the city's only motive.

"Of course, we want to make a little bit of money, but that's not really the point," he said. "We want to help our neighbor, we want to provide services to our neighbor, and that's good enough for us.

"It's sad to see your neighbor's house on fire and watch it burn, but we're not that kind of city," Hernandez said.

Maywood has had a contentious history for years. In the last decade, shouting matches have erupted during council meetings, election campaigns have been marked by political hit pieces, and even an accusation was made that a city clerk tried to have a councilman killed.

The Police Department has been the focus of troubles as well. Four years ago, the department faced a political outcry when it began running checkpoints that resulted in hundreds of cars being taken away from unlicensed illegal immigrants. Critics charged the checkpoints were an attempt to make money off Maywood's large illegal immigrant population.

The checkpoint sparked a political movement that brought a new council that was more sympathetic to illegal immigrants. But Maywood was back in the headlines when it declared itself a sanctuary city for illegal immigrants, making the town a target of conservative talk radio and TV news shows.