News in Depth

Schwarzenegger Dept. of Finance Announces Opposition To Sac'to Bill (Co-Authored by Ass'yman Furutani) That Would Enact Hurdles To Local Gov't Bankruptcy Filings; Senate Appropriations Committee Puts Measure On "Suspense File"; Vote To Advance Measure To Full Senate Or Hold In Committee Possible Thursday...Or Thereafter

(May 24, 2010) -- Following-up on a story previewed earlier today (May 24) on the Schwarzenegger administration's Dept. of Finance today today publicly opposed AB 155 (on fiscal grounds) -- a bill that would create hurdles for local government entities (including cities) seeking bankruptcy protection.

"The administration is opposed to this bill," said the Dept. of Finance's representative told the State Senate Appropriations Committee. "We note that despite the fact that there would be no direct general fund costs, the administrative delays resulting from the bill could have a significant impact on the fiscal condition of affected local governments."

Following statements for the record in support (from multiple unions) and in opposition (from multiple City Halls, including Long Beach), the Committee voted to put the bill on its "suspense" file, an action routinely taken for all bills that the Committee believes may create state General Fund costs of over $50,000 or special fund costs of over $150,000.

Putting the item on the "suspense file" means a decisional vote on whether to advance the measure to the State Senate floor will take place in the future...and may or may not come as soon as this Thursday.

The press aide to AB 155's author Assemblyman Tony Mendoza (D., Artesia-Norwalk) told that the office plans to give the committee minor amendments to the measure soon...and "we also hope that the bill will make it off of the suspense file this Thursday (May 27 when the committee takes up suspense items.

The Senate Appropriations Committee commonly takes up suspense items in August. The bill needs six "yes" votes from the Committee's 11 members (Senators Kehoe, Cox, Alquist, Corbett, Denham, Leno, Price, Walters, Wolk, Wyland, Yee) to advance to a vote the Senate floor. (A Committee majority controls the bill's fate).

AB 155 -- whose co-authors include Assemblyman Warren Furutani (D., Carson-LB) -- was amended slightly prior to today's hearing. It originally sought to prohibit local government entities from filing under federal bankruptcy law unless they received permission from the CA California Debt and Investment Advisory Commission (CDIAC), an entity comprised of the State Treasurer, and other members including the State Controller, the Governor, two members each from the Senate and Assembly, and two local government officials. (Assemblywoman Bonnie Lowenthal (D., LB) voted for the bill in the Assembly in that form).

Under amended text, a local public entity [cities] may file for bankruptcy if the Commission approves a request to do so OR the local public entity adopts a resolution to override the Commission's findings using the procedure below. The amended text (italics) now provides in pertinent part:

 (f)  A  If   the local public entity'
s request is denied pursuant to Section 8861, the  governing
board of  a   the  local public entity may
 reapply if its request was denied pursuant to Section 8861.
  do either of the following: 
    (1)     The local public entity may
reapply.  In making the reapplication, the local public entity
shall adopt another resolution and submit documentation to address
the deficiencies identified by the commission pursuant to Section
   (2) Hold a public hearing to override the decision adopted by the
commission, and adopt a resolution to declare the public entity's
intent to exercise authority pursuant to applicable federal
bankruptcy law under Section 53760. At the public hearing, the
governing body shall make findings regarding the necessity to
override the decision of the commission. If the governing body votes
to exercise its authority pursuant to Section 53760 and makes
findings to that effect, both the commission's findings and the local
public entity's findings shall be submitted with any filing of a
petition for bankruptcy pursuant to Section 53760. ...
  SEC. 3.  Section 8861 is added to the Government Code, to read:
   8861.  (a) The commission shall hold a public hearing to consider
a request made pursuant to Section 8860. The hearing shall provide
sufficient time for public testimony.
   (b) The commission shall, in a recorded vote on the date of the
hearing, approve or deny the request. 
   (c) If the commission approves a request, it may 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 all of the following:  
   (1) The commission may limit the changes to a contract. 

   (2) The commission may prohibit the abrogation of contracts.
   (3) The commission may limit the amount of relief to ensure the
protection of debt service payments.  
    (c)  If the commission disapproves a request, the
commission shall adopt specific findings that address the
deficiencies of the application. 

The latest amendments haven't quelled opposition to the bill from the League of CA Cities (advocacy group speaks for City Halls; LB is a member) which sent a blast email stating in pertinent part:

...Although the bill was amended on Thursday, May 20, the League remains opposed. The bill also has strong opposition from more than 200 local governments as well as state and local business and taxpayer groups.

A fundamental attack on local control, AB 155 is special interest legislation that undermines the ability of local governments to manage local financial resources and make decisions in the best long-term interests of city residents...

The bill is based on the misguided theory that state oversight of local government financial decisions is necessary. The irony is that the state canít seem to effectively manage its own financial affairs and the publicís distrust of Sacramento is at an all time high.

Key Points of Opposition

The new amendments are meaningless to municipalities considering bankruptcy. They provide municipalities the ability to override CDIACís denial to file Chapter 9. However, in reality CDIAC still holds cities hostage. The commission will always approve the request and then impose onerous conditions. Moreover, if a municipality overrides CDIACís decision, the municipality is required to reimburse CIDIAC for its work, the effect of which strains the municipality further.

CDIAC would not bring anything to the bankruptcy process that isnít already there. The bankruptcy process is effective and neutral and has worked for more than 70 years.

Chapter 9 provides an automatic stay for a city to identify creditors and seek to open negotiations with them to pursue a resolution of the debt outside of the bankruptcy process. It also provides protections for the city from creditors seeking to collect on their debt or from terminating service to the city. Under AB 155, CDIAC is given up to 45 days to approve or deny the municipalityís application to file Chapter 9. The process alerts the world to the cityís fiscal crisis and does not include relief from having to pay creditors during that time and puts the city in a more vulnerable position by making lenders wary.

AB 155 is a solution in search of a problem. The records show that itís extremely rare for a municipality to file Chapter 9. In fact, only three California cities have ever filed. On top of the great fiscal distress cities are already experiencing, the state is making it even worse by borrowing local revenues, taking local redevelopment funds, deferring payments in addition to this proposed state micromanagement of local fiscal affairs.

The LB Taxpayers Association also sent a blast email opposing the measure, stating in part:

This last minute decision [to schedule the May 24 Committee hearing/possible voted action] is an affront to all of those who have followed this bill and are opposed to its inception. It is also a reason to push for more transparency in government and for Long Beach Taxpayers Association to reintroduce the need for a Sunshine Amendment.

The actions of the State Senate is a reminder of what the Long Beach City Council did in 2002 when they voted, without discussion, to pass the pension enhancement the same Tuesday night the changeover occurred from the old to the new City Council.

AB 155 is sponsored by the CA Professional Firefighters Association (which has 170 local affiliates including the LB Firefighters Association Local 372) and is supported by a number of public employee unions. The measure was introduced after the City of Vallejo sought bankruptcy protection...citing labor costs (agreements with public employee unions approved by previous City Councils) as a major factor.

An April 2010 legislative analysis of AB 155 -- caveat: prior to the most recent amendments -- by the Senate Local Gov't Committee listed support and opposition at that time as follows:

Support and Opposition (4/15/10)

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 Bernardino, 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, Camarillo, Carmel-by-the-Sea, Carson, Carlsbad, Chowchilla, Clayton, Cloverdale, Clovis, Coalinga, Commerce, Concord, Costa Mesa, Cotati, Covina, Cypress, Daly City, 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, Irwindale, Kingsburg, La Palma, La Puente, La Verne, Laguna Hills, Lake Forest, Lafayette, Lakewood, 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, Novato, Oakdale, Oakland, Ontario, Oroville, Palmdale, Palo Alto, Paradise, Pasadena, Patterson, Pinole, Placentia, Pleasanton, Pomona, Rancho Cordova, Rancho Cucamonga, Reedley, Ridgecrest, Rialto, Rio Vista, Rohnert Park, Rolling Hills Estates, Rosemead, Salinas, Sanger, San Luis Obispo, San Marcos, San Pablo, Santa Cruz, Santa Maria, Santa Rosa, Seaside, Sebastopol, Shafter , Signal Hill, Stockton, Tehachapi, Tiburon, Torrance, Tracy, Tulare , Tustin, Vacaville, Vallejo, Villa Park, Visalia, Vista, Walnut Creek, Wasco, West Covina, West Hollywood, Westminster, Windsor, Woodlake, Woodland, Yorba Linda, Yountville, and Yucaipa, Ambrose Recreation and Park District, Bell Canyon Community Services District, El Dorado Hills Community Services District, Goleta Sanitary District, Lincoln rural County Fire Protection District, Mountain House Community Services District, Squaw Valley Public Service District, Stallion Springs Community Services District, Vista Irrigation District, Association of California Health Care Districts, Association of California Water Agencies, California Chamber of Commerce, California Contract Cities Association, California Public Securities 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.

To view the full text of the measure as amended, click here.

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