AB 155 has already passed the Assembly, where it received the "yes" vote of Assemblywoman Bonnie Lowenthal (D., LB).
AB 155's supporters and opponents are listed in a Senate Local Gov't Committee analysis, below.
[Committee staff analysis] In response to concerns about the City of Vallejo's recent
decision to file bankruptcy and the potential for
additional municipal bankruptcy filings, labor unions and
others want to require state oversight of local
governments' bankruptcy petitions.
Proposed Law
Assembly Bill 155 authorizes a local public entity, with
the approval of the California Debt and Investment Advisory
Commission (CDIAC), and under CDIAC's terms and conditions,
to file a petition and exercise powers pursuant to
applicable federal bankruptcy law.
...AB 155 authorizes the Commission, if it approves a request,
to order the entity, as a condition of approving the
request, to limit the nature and extent of relief provided
through Chapter 9 bankruptcy proceedings, including: Limiting changes to a contract, Prohibiting the abrogation of contracts, and Limiting the amount of relief to ensure the protection of debt service payments...
Comments
1. Compelling state interest. Municipal bankruptcy's
broad and significant impact on residents within the
bankrupt entity's jurisdiction, on other local government
entities, and on the state necessitates state oversight of
local public entities' bankruptcy filings. Because local
and state finances in California are inextricably linked,
the state has a direct interest in the fiscal health of its
local governments. A municipal bankruptcy can have
statewide repercussions, including higher borrowing costs
for other local entities and the state. The state also has
a compelling interest in ensuring the validity and
enforceability of contracts negotiated through the
collective bargaining process, which provides the
foundation for positive and stable labor relations. The
review process authorized by AB 155 could help local
officials find alternative strategies to address short-term
fiscal challenges in ways that avoid the broad and lasting
spillover effects of municipal bankruptcy. AB 155 follows
a model used successfully in other states to protect the
interests of a broad coalition of stakeholders who are
impacted by municipal bankruptcies.
2. Local control. By authorizing CDIAC to either deny, or
impose conditions on, a local public entity's bankruptcy
filing, AB 155 critically undermines local officials'
discretion in responding to fiscal crises. Local elected
officials are directly accountable to residents within
communities affected by a municipal bankruptcy. As a
result, a decision to enter bankruptcy is a last resort
that those officials do not take lightly. High legal
costs, damaged credit ratings, and a lasting stigma that
can deter investment and growth in a community all weigh
heavily against a decision to authorize a bankruptcy
filing. The principal benefit of federal bankruptcy is the
automatic stay of financial obligations which allows a
local entity some breathing space to formulate a debt
readjustment plan that is consistent with the fiscal
interests and priorities of the local community. Allowing
CDIAC to deny, or limit, a local entity's bankruptcy
restructuring could place the burden of fiscal recovery
solely on cuts to public services, which might not reflect
local residents' priorities. The Committee may wish to
consider whether AB 155 constitutes an unjustifiable
intrusion into local affairs.
3. What's changed? Local officials have used municipal
bankruptcy protection sparingly during the 70 years that it
has been available to local public entities in California.
Only three general purpose governments have filed for
municipal bankruptcy protection: Orange County (1994), the
City of Desert Hot Springs (2001), and the City of Vallejo
(2008). During the past decade, 18 local public entities
have filed for bankruptcy; more than half were small health
care districts. This recent average of fewer than two
municipal bankruptcy filings per year from among the
thousands of local public entities in California may
reflect the substantial, inherent disadvantages of
resorting to bankruptcy. Proponents of AB 155 argue that
this history of bankruptcy filings and the inherent
disincentives are not reliable indicators of future
behavior. The immense fiscal challenges now confronting
many local governments and the precedent set by Vallejo's
bankruptcy may open the door to more widespread, and less
responsible, use of bankruptcy protection in the near
future. The Committee may wish to consider whether these
potential changes to the frequency and purpose of municipal
bankruptcy filings justify the changes that AB 155 makes to
the state's long-standing municipal bankruptcy statute.
4. What happens next? It is unclear what might happen
after CDIAC denies a local public entity's request to file
for bankruptcy, or imposes conditions on a bankruptcy
filing that make restructuring impossible. As mentioned in
Governor Wilson's veto of the 1996 Kopp bill, some
opponents of state oversight of municipal bankruptcy argue
that a denial of eligibility for bankruptcy "could raise
questions of liability of the state to creditors of the
public agency." However, there is no evidence that this
theoretical concern has, in fact, become a problem in
states that block access to municipal bankruptcy.
Regardless of whether the state may incur legal liability,
it may face heightened political pressure to provide fiscal
assistance to a local entity that can't seek bankruptcy
protection. Legislators may feel obligated to intervene to
ensure that an insolvent local entity doesn't stop
providing vital public services. The Committee may wish to
consider whether the state oversight authorized by AB 155
to protect limited state interests could result in expanded
state obligations to struggling local entities.
Support and Opposition (7/2/09)
Support: California Professional Firefighters, CDF
Firefighters Local 2881, California Labor Federation,
California State Treasurer Bill Lockyer, AARP, American
Federation of State, County and Municipal Employees,
AFL-CIO, Association for Los Angeles Deputy Sheriffs,
California Alliance for Retired Americans, California
Association of Highway Patrolmen, California Conference
Board of the Amalgamated Transit Union, AFL-CIO, California
Nurses Association, California Reinvestment Coalition,
California School Employees Association, California State
Employees Association, California State Firefighters'
Association, Inc., California Teamsters Public Affairs
Council, Consumer Federation of California, Engineers and
Scientists of California, Glendale City Employees
Association, International Longshore & Warehouse Union,
Kern County Fire Fighters Union, Inc., Los Angeles County
Probation Officers Union, Livermore-Pleasanton Firefighters
Local 1974, Los Angeles County Fire Fighters Local 1014,
Los Angeles Police Protective League, National Nurses
Organizing Committee, North Bay Labor Council, AFL-CIO,
Orange County Employees Association, Orange County
Professional Firefighters Association, Organization of SMUD
Employees, Peace Officers Research Association of
California, Production Strategies, Inc., Professional and
Technical Engineers Local 21, Professional Engineers in
California Government, Riverside Sheriffs' Association, San
Bernardino Public Employees Association, San Diego
Municipal Employee's Association, San Francisco Labor
Council, San Luis Obispo County Employees Association,
Santa Rosa City Employees Association, Service Employees
International Union, State Building and Construction Trades
Council of California, UNITE HERE, United Food and
Commercial Workers Union, Western States Council.
Opposition : Counties of Butte, Imperial, Nevada, Madera,
Orange, Riverside, San Luis Obispo, Yolo, Cities of
Antioch, Adelanto, Apple Valley, Atascadero, Arvin,
Bellflower, Belmont, Benicia, Berkeley, Beverly Hills,
Blythe, Brea, Burbank, Burlingame, California City,
Calistoga, Carmel-by-the-Sea, Carson, Carlsbad, Chowchilla,
Clayton, Cloverdale, Clovis, Coalinga, Commerce, Concord,
Cotati, Covina, Cypress, Danville, Diamond Bar, Dixon, El
Segundo, Encinitas, Exeter, Fairfield, Fontana, Fountain
Valley, Fowler, Fremont, Fullerton, Glendora, Greenfield,
Guadalupe, Hanford, Healdsburg, Hermosa Beach, Highland,
Hollister, Hughson, Huntington Park, Huntington Beach,
Irvine , Kingsburg, La Palma, La Puente, La Verne, Laguna
Hills, Lake Forest, Lafayette, Lathrop, Lawndale, Lemoore,
Lindsay, Livermore, Long Beach, Madera, Mammoth Lakes,
Manhattan Beach, Manteca, Merced, Mendota, Mill Valley,
Modesto , Moreno Valley, Murrieta, Napa, Newport Beach,
Norco, Norwalk, Oakdale, Oakland, Ontario, Oroville,
Palmdale, Palo Alto, Paradise, Patterson, Pinole,
Placentia, Pleasanton, Pomona, Rancho Cordova, Rancho
Cucamonga, Reedley, Ridgecrest, Rialto, Rio Vista, Rohnert
Park, Rolling Hills Estates, Rosemead, Salinas, San
Francisco, Sanger, San Luis Obispo, San Marcos, San Pablo,
Santa Cruz, Santa Maria, Santa Rosa, Seaside, Sebastopol,
Shafter , Signal Hill, Stockton, Tehachapi, Torrance,
Tracy, Tulare , Tustin, Vacaville, Villa Park, Visalia,
Walnut Creek, Wasco, West Hollywood, Westminster, Windsor,
Woodlake, Yorba Linda, Yountville, and Yucaipa, Association
of California Health Care Districts, Association of
California Water Agencies, California Contract Cities
Association, California Society of Municipal Finance
Officers, California State Association of Counties,
California Special Districts Association, Howard Jarvis
Taxpayers Association, League of California Cities, League
of California Cities Inland Empire Division, League of
California Cities Orange County Division, Marin County
Council of Mayors and Councilmembers, South Bay Cities
Council of Governments.
