BILL NUMBER: AB 155 AMENDED
BILL TEXT
AMENDED IN SENATE AUGUST 31, 2010
AMENDED IN SENATE AUGUST 20, 2010
AMENDED IN SENATE JUNE 1, 2010
AMENDED IN SENATE MAY 20, 2010
AMENDED IN SENATE JULY 1, 2009
AMENDED IN ASSEMBLY JUNE 1, 2009
AMENDED IN ASSEMBLY MARCH 27, 2009
INTRODUCED BY Assembly Member Mendoza
(Principal coauthor: Assembly Member Torrico)
(Coauthors: Assembly Members Brownley, Coto, De Leon, Fuentes,
Furutani, Lieu, Ma, Nava, John A. Perez, V. Manuel Perez, Price, and
Yamada)
(Coauthors: Senators DeSaulnier, Liu, and Wiggins)
JANUARY 26, 2009
An act to amend Section 53760 of, and to add Sections 8860, 8861,
8862, 8863, 8864, 8865, and 53760.5 to, the Government Code, relating
to local government.
LEGISLATIVE COUNSEL'S DIGEST
AB 155, as amended, Mendoza. Local government: bankruptcy
proceedings.
Under existing law, any taxing agency or instrumentality of the
state may file a petition and prosecute to completion bankruptcy
proceedings permitted under the laws of the United States.
This bill would provide that a local public entity may only file
under federal bankruptcy law with the approval of the California Debt
and Investment Advisory Commission, except as specified. The bill
would also provide an alternative procedure for a local entity to
file under federal bankruptcy law by submitting specific analyses
regarding its financial position to the State Auditor who would be
required to audit the analyses and financial position of the local
entity. The bill would make the local public entity responsible
for the costs of the audit, as specified. The public entity
would be authorized to file a petition under federal bankruptcy law
after the State Auditor has notified the public entity of completion
of its audit work and made public the findings of that audit.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. The Legislature hereby finds and declares all of the
following:
(a) The California Constitution and current statutory law provide
for a continuity and interdependence between state and local
government entities. Seeking financial relief through the provisions
of Chapter 9 (commencing with Section 901 of Title 11) of the United
States Code imposes costs on a municipality, potentially exceeding $1
million. It can reduce service levels to the taxpayers and residents
of a municipality. In some circumstances, it can have major short-
and long-term fiscal consequences to the municipality, the
surrounding local public entities, and the state. In 2009, bond
counsel stated that "filing for bankruptcy protection under Chapter 9
should be considered a last resort, to be effected only after every
effort has been made to avoid it."
(b) The Legislature has an interest in monitoring the conditions
under which local entities seek Chapter 9 protection. The relief
provided through the federal courts can affect state and municipal
government service levels, debt, and contracts. The Legislature also
has a strong interest in ensuring adequate disclosure of the
conditions under which a municipality may seek Chapter 9 protection.
(c) To the extent financial relief granted through Chapter 9 can
affect debt service payments, the state's investors and bondholders
have a direct interest in the Bankruptcy Court's decisions.
(d) The state has established a statewide system of public
employee collective bargaining for state and local government
employers and employees intended to protect the state's interest in
promoting peaceful and harmonious labor relations and preventing work
stoppages. The validity and enforceability of contracts arrived at
through collective bargaining are essential to maintaining labor
peace and the uninterrupted delivery of vital public services, and
these agreements may be subject to review and amendment or rescission
in the event of a Chapter 9 bankruptcy proceeding.
(e) The state has established and administers statewide pension
systems that provide retirement and health benefits to state and
local agency employees, many of whose benefits rely on contracts
negotiated between local agencies and the California Public Employees'
Retirement System, and that may be subject to review and amendment
or rescission in the event of a Chapter 9 bankruptcy proceeding.
(f) California is one of only 12 states that grants blanket
authority for its municipalities to petition for bankruptcy and
offers no opportunity for its municipalities to receive state-level,
prebankruptcy guidance, oversight, or assistance for those
jurisdictions that are truly insolvent and face no other alternative
to bankruptcy.
(g) State intervention in local affairs should only occur in
exceptional circumstances and not without a compelling interest of
statewide concern.
(h) Given the connection between state allocations and local
budgets, the state has a role in mitigating possible local
bankruptcy.
(i) It is the duty of all state and local elected officials to
ensure that governments provide essential services to the communities
they are elected to serve.
(j) California's taxpayers who rely on public safety, senior,
park, and library services, as well as those who own and operate
businesses in our communities, deserve every effort that state and
local government can make to avoid the long-term devastation of
bankruptcy.
(k) The California Debt and Investment Advisory Commission is the
appropriate body to provide the expert oversight and guidance sought
by local public agencies who find themselves in a fiscal crisis,
given its current statutory duties to collect municipal finance data,
conduct research, administer educational seminars, and provide
information and technical assistance on behalf of local public
agencies and their finance professionals, and given the commission's
diverse membership that includes state and local government financial
experts.
SEC. 2. Section 8860 is added to the Government Code, to read:
8860. (a) The commission shall, upon request of a local public
entity, advise and, if deemed appropriate by the commission, grant
approval to the entity to exercise its rights pursuant to Section
53760.
(b) Upon request under subdivision (a), the local public entity
shall submit all of the following to the commission:
(1) A resolution or ordinance, adopted by that governing body at a
public hearing held pursuant to the Ralph M. Brown Act (Chapter 9
(commencing with Section 54950) of Part 1 of Division 2 of Title 5),
that does both of the following:
(A) Requests authority pursuant to Section 53760 to petition the
federal bankruptcy court for financial relief under the provisions of
Chapter 9 (commencing with Section 901 of Chapter 11) of the United
States Code.
(B) Acknowledges that the state's fiscal and financial
responsibilities are not changed by the application or the commission'
s decision pursuant to Section 8861.
(2) A thorough analysis of the entity's request to petition under
Chapter 9 (commencing with Section 901 of Title 11) of the United
States Code. In addition to any other information it may provide, the
entity shall do all of the following:
(A) Demonstrate that it is or will be unable to pay its undisputed
debts.
(B) Demonstrate that it has exhausted all options to avoid seeking
relief under Chapter 9.
(C) Detail a specific plan for restoring the soundness of the
entity's financial plans.
(3) An itemization of creditors that may be impaired or may seek
damages as a result of the proposed plan.
(4) Evidence of irreparable harm that may result during the 30-day
evaluation period, pursuant to subdivision (d), and the 15 days
allotted for a hearing, pursuant to subdivision (e).
(c) (1) Upon receipt of the information required by subdivision
(b), the commission shall evaluate the information presented and
within 5 days, notify the local public entity of one of the following
results:
(A) Approval of the request.
(B) The commission intends to proceed with a further evaluation
based on a finding that the local public entity did not provide
sufficient evidence pursuant to paragraph (4) of subdivision (b).
(2) If the commission determines that it will proceed with a
further evaluation, pursuant to subparagraph (B) of paragraph (1),
the commission shall publish its evaluation within 30 business days.
If the commission does not respond to the request within five days of
receipt of the request, the request shall be deemed approved.
(d) After noticing the local public agency of the commission's
intent to further evaluate the request, the commission staff shall
specifically evaluate the extent to which the local public entity has
done the following:
(1) Demonstrated that it has exhausted other remedies.
(2) Demonstrated that it has taken sufficient steps to reduce the
negative consequences of its proposed bankruptcy relief.
(3) Anticipated the transfer of service responsibility to other
governments or parties and to what extent the entity has documented
the consequences for the transfer of municipal and other government
services.
(4) Documented the likely effect a successful petition will have
on state and local finances, including the impact on credit access
and debt service.
(5) Proposed a remedy that is appropriate and proportionate to the
entity's fiscal problems.
(e) After the commission conducts the evaluation, pursuant to
paragraph (2) of subdivision (c) and publishes its evaluation, the
commission shall conduct a hearing and publish a decision within 15
days of, but not less than 10 days after, the publication of the
staff evaluation conducted pursuant to subdivision (d). The hearing
shall be conducted according to the provisions of Section 8861. The
commission hearing on the application shall be held in convenient
proximity of the entity filing the application.
(f) If the local public entity's request is denied pursuant to
Section 8861, the governing board of the local public entity may 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 8861.
(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.
(g) A county that has requested approval to file under subdivision
(a) may require local agencies with funds invested in the county
treasury to provide a five-day notice of withdrawal before the county
is required to comply with a request for withdrawal of funds by that
local agency.
(h) As used in this chapter, "local public entity" means any city,
county, city and county, district public authority, public agency,
or other entity that is a "municipality" within the meaning of
paragraph (40) of Section 101 of Title 11 of the United States Code,
or that qualifies as a debtor under any federal bankruptcy law
applicable to local public entities.
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 disapproves a request, the commission shall
adopt specific findings that address the deficiencies of the
application.
(d) The hearing shall be subject to the provisions of the
Bagley-Keene Open Meeting Act (Article 9 (commencing with Section
11120) of Chapter 1 of Part 1 of Division 3 of Title 2). At the same
time that the notice and agenda for the hearing is posted to comply
with the requirements of the Bagley-Keene Open Meeting Act, the
commission shall do all of the following:
(1) Post the notice in a location in the local public entity that
is freely accessible to members of the public.
(2) Deliver the notice personally, by United States mail, or by
facsimile transmission, to each local newspaper of general
circulation whose circulation area reasonably includes the local
public entity.
(3) Deliver the notice by United States mail, or by facsimile
transmission, to each radio or television station that has requested
notice in writing.
(4) Request publication of the notice in the daily file of each
house of the Legislature at least 24 hours prior to the date of the
meeting, if the Legislature is in session.
SEC. 4. Section 8862 is added to the Government Code, to read:
8862. (a) After the commission receives a request pursuant to
Section 8860, the executive director shall record costs incurred by
the commission to make and publish the evaluation pursuant to Section
8860 and conduct the hearing required under Section 8861. The
director shall report those costs to the commission at the next
regularly scheduled commission hearing.
(b) Upon denial of the request, the executive director or
commission may assess the requesting entity a fee to cover some or
all the costs associated with making the findings and conducting the
hearing. Fee revenue shall be deposited in the California Debt and
Investment Advisory Commission Fund.
(c) The commission may propose regulations to govern the request
and review process required under Sections 8860 and 8861.
SEC. 5. Section 8863 is added to the Government Code, to read:
8863. In enacting Sections 8860, 8861, 8862, and the changes in
Section 53760, the state assumes no new or additional fiscal
responsibilities for local entities that may apply to the commission
for review pursuant to this chapter.
SEC. 6. Section 8864 is added to the Government Code, to read:
8864. This section and Sections 8860, 8861, 8862, 8863, and 8865
shall only apply to a local public entity on or after the effective
date of the act adding this section.
SEC. 7. Section 8865 is added to the Government Code, to read:
8865. If a member of the California Debt and Investment Advisory
Commission is also employed as a local government finance officer by
an entity requesting approval pursuant to Section 8860, the Treasurer
shall replace that member, for purposes of the application of the
local government that also employs the member, with a person employed
by a city, county, or city and county, within the state, experienced
in the issuance and sale of municipal bonds and nominated by
associations affiliated with these agencies, to preside over that
application.
SEC. 8. Section 53760 of the Government Code is amended to read:
53760. (a) Except as otherwise provided by statute, a local
public entity in this state may, with the approval of the California
Debt and Investment Advisory Commission, file a petition and exercise
powers pursuant to applicable federal bankruptcy law if either of
the following apply:
(1) The California Debt and Investment Advisory Commission has
approved a request by the local public entity pursuant to Section
8860.
(2) The governing board of the local public entity has adopted a
resolution to override the commission's findings pursuant to Section
8860.
(b) As used in this section, "local public entity" means 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.
SEC. 9. Section 53760.5 is added to the Government Code, to read:
53760.5. (a) As an alternative to the procedure specified and
required pursuant to Section 53760, a local public entity may file a
petition and exercise powers pursuant to applicable federal
bankruptcy law if it meets the requirements of this section.
(b) To file a petition and exercise powers pursuant to federal
bankruptcy law pursuant to this section, a local public entity shall
submit information to the State Auditor describing the public entity'
s current financial position. This information shall include analyses
of all of the following:
(1) The local public entity's petition to exercise powers pursuant
to applicable federal bankruptcy law.
(2) The local public entity's ability to pay its undisputed debts.
(3) The options that the local public entity has considered to
avoid seeking relief under this section.
(4) The local public entity's plan for restoring the soundness of
the local public entity's financial position.
(5) An itemized list of creditors that may be impaired or may seek
damages as a result of the proposed plan.
(c) Upon receipt of the analyses described in subdivision (b), the
State Auditor shall audit the analyses and financial position of the
local public entity. The State Auditor shall work with the local
public entity to establish a deadline for the audit work. The local
public entity may file a petition to exercise powers pursuant to
applicable federal bankruptcy law, only after the State Auditor has
notified the local public entity of completion of its audit work and
made public the findings of that audit work.
(d) Any audit initiated under this section shall take precedent
over any pending audit requested under subdivision (b) of Section
8546.1.
(e) If a local public entity requests an audit pursuant to this
section, the Controller shall transfer sufficient funds from the
General Fund to the State Auditor to reimburse the State Auditor for
the audit activities. The Controller shall use General Fund revenues
that are payable to the state from local public entities during the
fiscal year in which the audit is performed. Nothing in this
subdivision shall be deemed to create an additional fiscal obligation
to the local public entity.
(e)
(f) As used in this section, "local public entity"
means 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.
SEC. 10. The Legislature finds and declares that
the duties of the State Auditor that arise under Section 53760.5 of
the Government Code, as proposed to be added by this act, shall be
initially funded from the State Audit Fund, pursuant to Section
8544.5 of the Government Code, which meets the requirements of
subdivision (b) of Joint Rule 37.4, and which shall be subsequently
reimbursed pursuant to subdivision (e) of Section 53670.5 of the
Government Code.