Three years ago, Vallejo, Calif. was so broke that it declared bankruptcy. Now a judge has approved the city’s rebound plan, and it’s emerged as a leaner, ideally more efficient entity with a balanced budget.

The city manager tells CNBC that bankruptcy seems to have been good for the city, shedding government waste and somehow strengthening the community by crippling its police force. He says Neighborhood Watch groups exploded because citizens realized they had to look out for one another rather than rely upon authorities.

The big losers are current and retired city workers, who were stifled when attempting to recoup lost pay and benefits — settling for 30 cents on the dollar — as well as those who bought city bonds, some who will recover maybe half of what they invested.

Despite the scarlet B, the city manager says the municipal government is doing better than Washington: “We’re sustainable. They’re not,” he quips.

What would you do if your city went bankrupt and had to gut public safety services?

A New Chapter for Vallejo [CNBC]

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