BILL ANALYSIS
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|SENATE RULES COMMITTEE | AB 155|
|Office of Senate Floor Analyses | |
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THIRD READING
Bill No: AB 155
Author: Mendoza (D)
Amended: 6/1/10 in Senate
Vote: 21
SENATE LOCAL GOVERNMENT COMMITTEE : 3-2, 4/19/10
AYES: Kehoe, DeSaulnier, Price
NOES: Cox, Aanestad
SENATE APPROPRIATIONS COMMITTEE : 6-4, 5/27/10
AYES: Kehoe, Alquist, Corbett, Leno, Price, Yee
NOES: Denham, Walters, Wolk, Wyland
NO VOTE RECORDED: Cox
ASSEMBLY FLOOR : 47-25, 6/3/09 - See last page for vote
SUBJECT : Local government: bankruptcy proceedings
SOURCE : California Labor Federation, AFL-CIO
California Professional Firefighters
California Teamsters Public Affairs Council
Peace Officers Research Association of
California
DIGEST : This bill provides that a local public entity
may only file under federal bankruptcy law with the
approval of the California Debt and Investment Advisory
Committee, except as specified.
ANALYSIS : Federal bankruptcy law for public agencies
(Chapter 9) gives government debtors time to come up with
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repayment plans, providing them a breathing spell from
creditors' collection efforts. Unlike private bankruptcy
law (Chapter 11), municipal bankruptcy law must respect the
states' sovereign powers. Consequently, the states can
control their local agencies' access to federal bankruptcy
protection.
Like 11 other states, California grants its local public
agencies the broadest possible access to federal bankruptcy
available. The state statutes broadly authorizing
bankruptcy filings by local governments were first enacted
in 1939 (SB 338, Phillips, 1939) and codified in 1949 (SB
768, Cunningham, 1949). In 2001, after studying the state
statutes authorizing bankruptcy filings by local public
entities, the California Law Revision Commission
recommended revisions to conform the statutes to changes in
federal bankruptcy law and to reaffirm the intent of the
statute to provide the broadest possible access to
municipal debt relief under federal law. Legislators
approved the Commission's recommendations the following
year (SB 1323, Ackerman, Chapter 94, Statutes of 2002).
This bill authorizes a local public entity, with the
approval of California Debt and Investment Advisory
Committee (CDIAC) to file a petition and exercise powers
under 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.
2. The governing board of the local public entity has
adopted a resolution to override the commission's
findings.
I. Submitting a request . When a local public entity asks
CDIAC for approval to exercise its rights under federal
bankruptcy law, this bill requires local officials to
submit:
1. A resolution or ordinance, adopted by the
governing body at a public hearing held pursuant to
the Ralph M. Brown Act that does both of the
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following:
A. Requests authority to petition the federal
bankruptcy court for financial relief.
B. Acknowledges that the state's fiscal and
financial responsibilities are not changed by the
application or CDIAC's decision.
2. A thorough analysis of the entity's request to
petition under federal bankruptcy law. The entity
must:
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 and the 15 days
allotted for a hearing.
This bill allows a county that requests approval from
CDIAC to require local agencies with funds invested in
the county treasury to provide a five-day notice of
withdrawal before the county must comply with a request
for withdrawal of funds.
II.Initial review . Within five days of receiving the
information that must accompany a local public entity's
request, CDIAC must evaluate the information and notify
the entity of one of the following results:
5. Approval of the request, or
6. That CDIAC will proceed with a further evaluation
based on a finding that the local public entity did
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not provide sufficient evidence of irreparable harm.
If CDIAC does not respond within five days, the request
is deemed approved.
III.Evaluation . This bill requires CDIAC to publish its
evaluation within 30 business days of receiving the
information that must accompany a local public entity's
request. After notifying the local public entity of its
intent to further evaluate a request, CDIAC's staff must
specifically evaluate the extent to which the local
public entity has done the following:
7. Demonstrated that it has exhausted other
remedies,
8. Demonstrated that it has taken sufficient steps
to reduce the negative consequences of its proposed
bankruptcy relief,
9. 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,
10. Documented the likely effect that a
successful petition will have on state and local
finances, including the impact on credit access and
debt service,
11. Proposed a remedy that is
appropriate and proportionate to the entity's fiscal
problems.
IV.Hearing . This bill requires CDIAC to hold a public
hearing to consider a local public entity's request for
approval to file a petition and exercise powers pursuant
to federal bankruptcy law. The hearing must:
12. Occur at least 10 days, but not
more than 15 days, after the publication of CDIAC's
staff evaluation of the request,
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13. Comply with the provisions of the
Bagley-Keene Open Meeting Act and additional public
notice provisions,
14. Provide sufficient time for public
testimony, and
15. Be held in convenient proximity of
the local public entity.
V. Denial . This bill requires CDIAC, in a recorded vote on
the date of the public hearing, to approve or deny the
local entity's request.
If CDIAC disapproves a request, it must adopt specific
findings that address the deficiencies of the
application. If CDIAC denies a request, the local
public entity may:
16. Reapply to the commission by a
resolution that includes documentation addressing
the deficiencies initially identified by the
commission.
17. 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.
VI.Additional provisions . The bill requires CDIAC's
executive director, after the Commission receives a
local public entity's request for review and approval of
a bankruptcy filing, to record the costs incurred by
CDIAC in conducting an evaluation of and holding a
hearing on the request. The director must report those
costs to the Commission at its next regularly scheduled
hearing. Upon denial of the request, the director or
Commission may assess the requesting entity a fee to
cover some or all of CDIAC's costs. Fee revenue must be
deposited in a specified fund.
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This bill allows CDIAC to propose regulations to govern
the request and review process enacted by the bill.
This bill states that, in enacting the bill, the state
assumes no new or additional fiscal responsibilities for
local entities that may apply to CDIAC for review.
This bill requires the State Treasurer to temporarily
replace a local government finance officer serving on
CDIAC who is employed by an entity requesting CDIAC's
approval to petition for bankruptcy with another local
government representative who meets the qualifications
for membership on the Commission.
Comments
Because one municipality's bankruptcy may have a negative
effect on other local governments' borrowing power, some
states limit or prohibit their local governments to access
federal protections. Local governments in 22 states do not
have access to municipal bankruptcy, while 16 other states
impose some conditions on municipal bankruptcy filings.
The conditions imposed by other states range from a
requirement that a local entity's legislative body must
pass an ordinance or resolution before filing for
bankruptcy to a requirement that a state commission grant
approval before a local government may file for bankruptcy.
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). The Law Revision Commission's
2001 study also considered proposals to require prefiling
approval by the Governor or a governmental committee, but
did not recommend any substantive reforms.
CDIAC provides information, education, and technical
assistance on debt issuance and public fund investments to
local public agencies. The Commission has nine members,
including the State Treasurer, the Governor or the Director
of Finance, the State Controller, two local government
finance officials, two Assembly Members, and two Senators.
The State Treasurer serves as the Chairperson and appoints
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the two local government officials. The Assembly Speaker
appoints the Assembly's representatives and the Senate
Rules Committee appoints the Senate's representatives.
On May 23, 2008, the City of Vallejo filed a Chapter 9
bankruptcy petition. The City subsequently asked the
bankruptcy court for permission to reject collective
bargaining agreements with four unions representing city
employees. Early last year, the City negotiated
supplemental labor agreements with two of those unions.
The City Council recently approved a new labor agreement
with a third union after reaching an agreement under which
the City rejected that union's collective bargaining
agreement. The fourth union is appealing the bankruptcy
court's ruling that the City can reject its collective
bargaining agreement, leaving the status of that agreement
unresolved. Vallejo remains under the bankruptcy court's
protection.
In response to concerns about Vallejo's decision to file
for bankruptcy and the potential for additional municipal
bankruptcy filings, labor unions and others want to require
state oversight of local governments' bankruptcy petitions.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According to the Senate Appropriations Committee:
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
SUPPORT : (Verified 6/22/10)
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California Labor Federation, AFL-CIO (co-source)
California Professional Firefighters (co-source)
California Teamsters Public Affairs Council (co-source)
Peace Officers Research Association of California
(co-source)
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 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.
CDF Firefighters Local 2881
Consumer Federation of California
Engineers and Scientists of California
Glendale City Employees Association
International Brotherhood of Electrical Workers
International Longshore and Warehouse Union
Kern County Fire Fighters Union, Inc.
L.A. 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, Local
3631
Organization of SMUD Employees
Peace Officers Research Association of California
Production Strategies Inc.
Professional Engineers in California Government
Retired Public Employees' Association
Riverside Sheriffs' Association
Salinas Firefighters
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San Bernardino Public Employees Association
San Diego Municipal Employee's Association
San Louis Obispo County Employees Association
Santa Clara County Firefighters
Santa Rosa City Employees Association
Service Employees International Union
State Building and Construction Trades Council of CA
UNITE HERE
United Food and Commercial Workers Union
Western States Council Del Mar Firefighters Loc. 4163
OPPOSITION : (Verified 6/22/10)
Ambrose Recreation and Park District
Association of California Healthcare Districts
Association of California Water Agencies
Bay Area Council
Bear Valley Community Services District
Bell Canyon Community Services District
Bell Canyon Community Services District
Bethel Island Municipal Improvement District
Boulder Creek Fire Protection District
California Association of Joint Powers Authorities
California Chamber of Commerce
California Contract Cities Association
California Public Securities Association
California Society of Municipal Finance Officers
California Special Districts Association
California State Association of Counties
California State Employees Association
Castroville Community Services District
Coachella Valley Mosquito and Vector Control District
Costa Mesa Sanitary District
Cucamonga Valley Water District
Dublin San Ramon Services District
El Dorado Hills Community Services District
Fulton-El Camino Recreation and Park District
Goleta Sanitary District
Goleta West Sanitary District
Hayward Area Recreation and Park District
Howard Jarvis Taxpayers Association
Irvine Ranch Water District
Kern County Cemetery District
League of California Cities
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League of California Cities, Inland Empire Division
League of California Cities, Orange County Division
Lincoln Rural County Fire Protection District
Marin County Council of Mayors & Council Members
Mesa Consolidated Water District
Montalvo Municipal Improvement District
Moss Landing Harbor District
Mountain House Community Services District
Municipal Water District of Orange County
North Coast County Water District, Board Members
Orange County Business Council
Orange County Local Agency Formation Commission
Orange County Public Law Library
Pine Grove Community Services District
Regional Council of Rural Counties
San Diego County Fire Chiefs Association
San Diego County Fire Districts Association
San Gabriel Valley Economic Partnership
San Miguel Consolidated Fire Protection District
South Tahoe Public Utility District
Squaw Valley Public Service District
Stallion Springs Community Services District
Stanislaus Consolidated Fire Protection District
Stockton East Water District
Three Valleys Municipal Water District
Trinity Center Community Services District
Tuxedo Country Club Rural County Fire Protection District
Ventura Port District
Vista Irrigation District
West County Wastewater District
Western Municipal Water District
Western Shasta Resource Conservation District
City of Hughson, Office of the Mayor and City Council
Cities of: Adelanto, Agoura Hills, American Canyon,
Antioch, Arvin, Atascadero, Azusa, Bell Gardens,
Bellflower, Belmont, Benicia, Berkeley, Beverly Hills,
Bishop, Blythe, Brea, Brisbane, Burbank, Burlingame,
California City, Calistoga, Camarillo, Carlsbad,
Carmel-by-the-Sea, Carson, Chowchilla, Citrus Heights,
Clayton, Cloverdale, Clovis, Coalinga, Colfax, Commerce,
Concord, Costa Mesa, Cotati, Covina, Cypress, Daly City,
Diamond Bar, Dixon, El Cajon, El Segundo, Emeryville,
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Encinitas, Exeter, Fairfield, Folsom, Fontana, Fortuna,
Foster City, Fountain Valley, Fowler, Fremont, Fullerton,
Glendora, Grand Terrace, Greenfield, Gridley, Guadalupe,
Half Moon Bay, Hanford, Healdsburg, Hermosa Beach,
Hesperia, Highland, Hollister, Huntington Beach,
Huntington Park, Huron, Imperial Beach, Irvine,
Irwindale, Jackson, Kingsburg, La Palma, La Puente, La
Verne, Lafayette, Laguna Beach, Laguna Hills, Lake
Forest, Lakewood, Lathrop, Lawndale, Lemoore, Lindsay,
Livermore, Livingston, Long Beach, Madera, Manhattan
Beach, Manteca, Martinez, Marysville, Mendota, Merced,
Mill Valley, Modesto , Moreno Valley, Mt. Shasta,
Murrieta, Napa, Newport Beach, Norco, Norwalk, Novato,
Oakdale, Oakland, Oceanside, Ojai, Ontario, Oroville,
Palmdale, Palo Alto, Pasadena, Patterson, Pinole,
Placentia, Pleasanton, Pomona, Poway, Rancho Cordova,
Rancho Cucamonga, Red Bluff, Reedley, Rialto, Ridgecrest,
Rio Vista, Riverbank, Rohnert Park, Rolling Hills
Estates, Rosemead, Sacramento, Salinas, San Diego, San
Francisco, Sanger, San Jose, San Leandro, San Luis
Obispo, San Marcos, San Mateo, San Pablo, Santa Cruz,
Santa Maria, Santa Rosa, Seaside, Sebastopol, Shafter ,
Signal Hill, Sonoma, Sonora, South San Francisco,
Stockton, Tehachapi, Torrance, Tracy, Tulare , Turlock,
Tustin, Vacaville, Villa Park, Visalia, Vista, Walnut
Creek, Wasco, West Covina, West Hollywood, Westminster,
Woodlake, Yorba Linda, Yucaipa
Towns of: Apple Valley, Town of Danville, Hillsborough,
Mammoth Lakes, Paradise, Tiburon, Windsor, Yountville
Counties of: Butte, Imperial, Monterey, Nevada, Orange,
Sacramento, San Luis Obispo, Solano, Yolo
ARGUMENTS IN SUPPORT : According to the author's office,
"Federal law requires states to specifically authorize
municipal bankruptcy for local public entities. Right now,
California is one of just 12 states that provide
pre-authorization for Chapter 9 bankruptcy. 16 states set
some form of regulation and 22 states do not allow for
municipal bankruptcy. AB 155 provides much needed
oversight for this process.
"The decision to file for bankruptcy has greater
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implications for a community than most other decisions.
With a single vote a board can instantly lower the property
values of a community and ruin the reputation of a City or
County for years to come. Municipal bankruptcy can also
lead to a decline in public services, make it more
difficult for public entities to borrow money, and could
cause bond ratings to go down. The implications are too
high to allow instant approval to Chapter 9 bankruptcy. We
have an obligation to our communities to provide state
level oversight."
The author's office also states, "California taxpayers rely
on police and firefighters, senior centers, parks, library
services, as well as many other services. The citizens of
California, as well as the businesses in our state, deserve
every effort to avoid the long-term devastation of
bankruptcy.
"California's original law providing pre-authorization for
municipal bankruptcy was passed in 1949. It was
subsequently updated in 2002 to conform to federal law. AB
155 is needed in order to provide some oversight over the
municipal bankruptcy process to ensure that it is only used
as a matter of last resort."
ARGUMENTS IN OPPOSITION : According to the California
Chamber of Commerce, "Specifically, AB 155 requires local
governments that are considering bankruptcy to first get
approval from the California Debt and Investment Advisory
Commission (CDIAC), a politically-appointed entity that
currently does not meet regularly nor have the expertise to
handle bankruptcy proceedings. Bankruptcy laws for local
governments (Chapter 9) and for private businesses (Chapter
11) provide breathing room from creditors' collection
efforts and time to develop a repayment plan. It is
uncertain what CDIAC can provide that a fair and impartial
federal bankruptcy judge cannot provide.
"The question of what happens if CDIAC denies a filing for
bankruptcy and the local government entity remains
insolvent is unanswered. The business community's concern
is three-fold: Debts and contracts remain unpaid as the
local government entity simply will not function or is
dissolved; the local entity will raise fees, assessments
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and taxes on the community's residents and businesses at a
time when jobs need to be created and the economy
stimulated; the state - already facing a cash crisis and
budget deficit - steps in to take over the provision of
services, putting further strain on the budget that other
Californians and businesses that will have to pay for."
ASSEMBLY FLOOR :
AYES: Ammiano, Beall, Blumenfield, Brownley, Buchanan,
Caballero, Charles Calderon, Carter, Chesbro, Coto, De La
Torre, De Leon, Eng, Evans, Feuer, Fong, Fuentes,
Furutani, Galgiani, Hall, Hayashi, Hernandez, Hill,
Huber, Huffman, Jones, Krekorian, Lieu, Bonnie Lowenthal,
Ma, Mendoza, Monning, Nava, John A. Perez, V. Manuel
Perez, Portantino, Price, Ruskin, Salas, Saldana,
Skinner, Solorio, Swanson, Torlakson, Torres, Torrico,
Bass
NOES: Adams, Anderson, Arambula, Blakeslee, Conway,
DeVore, Duvall, Emmerson, Fletcher, Fuller, Gaines,
Garrick, Harkey, Jeffries, Knight, Logue, Miller,
Nestande, Niello, Nielsen, Silva, Smyth, Audra
Strickland, Tran, Villines
NO VOTE RECORDED: Bill Berryhill, Tom Berryhill, Block,
Cook, Davis, Gilmore, Hagman, Yamada
AGB:nl 6/22/10 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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