BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
155 (Mendoza)
Hearing Date: 5/24/2010 Amended: 5/20/2010
Consultant: Bob Franzoia Policy Vote: Local Gov 3-2
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BILL SUMMARY: AB 155 would provide that a local public entity
may only file under federal bankruptcy law with the approval of
the California Debt and Investment Advisory Committee
(commission), except as specified.
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Fiscal Impact (in thousands)
Major Provisions 2010-11 2011-12 2012-13 Fund
CDIAC review of local Minor to major costs annually,
ongoing;General*
requests depending on number and complexity of
bankruptcy evaluations
* Potentially offset in whole or in part by a fee on the
requesting local public entity to be deposited in the California
Debt and Investment Advisory Commission Fund
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STAFF COMMENTS: This bill may meet the criteria for referral to
the Suspense File.
Under Chapter 9 of the federal Bankruptcy Code, a municipality
receiving protection is shielded from creditor claims while it
works out a plan of adjustment with its creditors. The plan of
adjustment can involve a reduction to amounts owed, an extension
of debt repayments of debt payments, or a refinancing of debt.
Creditors can include holders of municipal debt, vendors, and
counterparties in contracts. Chapter 94/2002 allows a local
pubic entity to file a petition and exercise powers pursuant to
federal law, without any statewide approval or preconditions.
The commission provides information, education and technical
assistance on debt issuance and public fund investments to local
public agencies and other public finance professionals. The
commission serves as the state's clearinghouse for public debt
issuance information and to assist state and local agencies with
the monitoring, issuance, and management of public debt and
investments. The commission consists the State Treasurer, the
Governor or the Director of Finance, the State Controller, two
local government finance officials, two Assembly Members and two
Senators. Senators Cox and Liu represent the Senate. Under
this bill, the commission, subject to various provisions and
conditions, would be required to grant approval to a local
public entity before the local public entity could petition the
federal bankruptcy court for financial relief.
This bill would permit a local public entity to submit a
resolution to the commission that requests authority to petition
the federal bankruptcy court for financial relief and includes a
thorough analysis of the entity's request and evidence of
irreparable harm that may result from an evaluation period.
Page 2
AB 155 (Mendoza)
Upon receipt of information from the local public entity the
commission shall evaluate the information and within five days,
notify the local public entity that the commission approves the
request or the commission intends to proceed with a further
evaluation which shall evaluate the extent to which the local
public entity has:
- Demonstrated that it has exhausted other remedies.
- Demonstrated that it has taken sufficient steps to reduce the
negative consequences of its proposed bankruptcy relief.
- 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.
- Documented the likely effect a successful petition will have
on state and local finances, including the impact on credit
access and debt service.
- Proposed a remedy that is appropriate and proportionate to the
entity's fiscal problems.
If the local public entity's request is denied by a vote of the
commission, the governing board may:
(1) Reapply to the commission by a resolution that includes
documentation addressing the deficiencies initially identified
by the commission.
(2) Hold a public hearing to override the decision and adopt a
resolution to declare the public entity's intent to exercise
authority pursuant to applicable bankruptcy law. At the public
hearing, the governing board shall make findings regarding the
necessity to override the decision of the commission.
The above Provision 2 (page 5, lines 37-40 and page 6, lines
1-6) was added by the May 20, 2010 amendments. Those amendments
also restrict the authority of the commission to approving or
denying the request, removing the commission's authority to
condition an approval. Staff notes it appears these amendments
may limit any General Fund cost pressure to assist the local
public entity that may have resulted if the commission denied
the request. Additionally, Government Code 8863 as added by
this bill proposes that the state assumes no new or additional
fiscal responsibilities for local entities that may apply to the
commission for review pursuant to this bill.
The California Debt and Investment Advisory Commission Fund
(0956-001-0171) receives fees for assisting state or local
government units in the planning, preparation, marketing and
sale of new debt issues to reduce cost and to assist in
protecting the issuer's credit. The fee is the lesser of one
fortieth of one percent of the principal amount of the issue or
$5,000.