BILL ANALYSIS
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|SENATE RULES COMMITTEE | SB 1323|
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CONSENT
Bill No: SB 1323
Author: Ackerman (R)
Amended: 3/7/02
Vote: 21
SENATE LOCAL GOVERNMENT COMMITTEE : 5-0, 3/20/02
AYES: Torlakson, Ackerman, Machado, Margett, Soto
SUBJECT : Municipal bankruptcy
SOURCE : California Law Revision Commission
DIGEST : This bill modifies bankruptcy statute by
changing the definition of local government entity to
conform with the federal Bankruptcy Act definition of
"municipality. This bill also makes other conforming
changes and makes technical changes to correct obsolete
references.
ANALYSIS : Federal bankruptcy law for public agencies
gives government debtors time to come up with repayment
plans, providing them a breathing spell from creditors'
collection efforts. Unlike private bankruptcy law,
however, municipal bankruptcy law must respect the states'
sovereign powers. Consequently, the states have the power
to control their local agencies' access to federal
bankruptcy protection. Like 11 other states, California
grants its cities, counties, and special districts the
broadest possible access to federal bankruptcy available.
Because one municipality's bankruptcy may have a negative
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effect on other local governments' borrowing power, some
states limit or prohibit their local governments to access
federal protections. After the 1994 Orange County
bankruptcy, the Legislature tried to establish state
oversight in municipal bankruptcy filings. The bill
passed, but Governor Pete Wilson vetoed it (SB 349, Kopp,
1996).
California codified its local government bankruptcy statute
in 1949 and has not amended it since. Many of its
references to federal law have been obsolete since federal
law changed in 1978. In addition, the statute needs to
change in order to comply with 1994 federal amendments that
require specific state authorization before local
governments can petition for federal debt adjustment.
In 2001, the California Law Revision Commission produced a
study of California's municipal bankruptcy statute. The
commission recommended that the Legislature revise the
state law to conform with the federal provisions but
stopped short of recommending substantive policy changes.
This bill changes the bankruptcy statute by revising
California's definition of "local government entity" to fit
with the federal Bankruptcy Act's definition of
"municipality." This bill also repeals obsolete sections
and makes conforming changes.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
SUPPORT : (Verified 3/21/02)
California Law Revision Commission (source)
ARGUMENTS IN SUPPORT : According to Senate Local
Government Committee analysis, this bill modernizes state
law without limiting local governments' access to federal
bankruptcy protection. Public bankruptcies are uncommon in
California. Nevertheless, if fiscal stresses persist,
other counties, cities, or districts may seek federal
bankruptcy protection from their creditors. In the event
of another municipal bankruptcy, the changes in this bill
will ensure that local governments can use federal
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protection.
LB:sl 3/21/02 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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