BILL ANALYSIS
SB 1323
Page 1
Date of Hearing: June 5, 2002
ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
Patricia Wiggins, Chair
SB 1323 (Ackerman) - As Amended: March 7, 2002
SENATE VOTE : 38-0
SUBJECT : Municipal bankruptcy.
SUMMARY : Modifies bankruptcy statute by changing the
definition of "local government entity" to conform with the
federal Bankruptcy Act definition of "municipality".
Specifically, this bill :
1)Defines "local government entity" as any county, city,
district, public authority, public agency, or other entity,
without limitation, that is a "municipality," as defined in
paragraph (40) of Section 101 of Title 11 of the United States
Code (bankruptcy) or that qualifies as a debtor under any
other federal bankruptcy law applicable to local public
entities.
2)Makes conforming and technical changes to correct obsolete
references.
EXISTING LAW permits cities and other local taxing
instrumentalities of the state to file for federal bankruptcy
protection.
FISCAL EFFECT : None
COMMENTS :
1)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.
2)Because one municipality's bankruptcy may have a negative
SB 1323
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effect on other local government's borrowing power, some
states limit or prohibit local governments from pursuing
federal protections. After the 1994 Orange County bankruptcy,
the Legislature tried to establish state oversight for
municipal bankruptcy filings. The bill passed, but Governor
Pete Wilson vetoed it (SB 349, Kopp, 1996).
3)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.
REGISTERED SUPPORT / OPPOSITION :
Support
CA Law Revision Commission [SPONSOR]
Opposition
None on file
Analysis Prepared by : Joanne Wong / L. GOV. / (916) 319-3958