BILL NUMBER: AB 506 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY MARCH 31, 2011
INTRODUCED BY Assembly Member Wieckowski
FEBRUARY 15, 2011
An act to amend Section 31458.2 of the Government Code,
relating to county employees retirement. An act to
amend Section 53760 of, and to add Sections 8860, 53760.5, 53761,
53761.5, 53762, 5 3762.5, and 53763 to, the Government
Code, relating to local government.
LEGISLATIVE COUNSEL'S DIGEST
AB 506, as amended, Wieckowski. County employees
retirement. Local government: bankruptcy: mediation.
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 shall not file
under federal bankruptcy law unless the local public entity has
participated in mediation with interested parties, as defined, has
received a certificate of good faith participation, and if the
mediation results in either an agreement for debt readjustment, or if
the mediator certifies in writing that continued mediation will not
contribute to a resolution of the parties' dispute, under certain
circumstances. The bill would also require the California Debt and
Investment Advisory Commission to adopt mediation guidelines, as
specified.
Under existing law, counties and districts, as defined, may
provide retirement benefits to their employees pursuant to the County
Employees Retirement Law of 1937. The County Employees Retirement
Law of 1937 sets forth a comprehensive system of retirement benefits
for county and district employees. That law requires, if a member
dies leaving a spouse and has not designated a beneficiary, and,
prior to the payment of any portion of the death benefit, the
surviving spouse files with the board written evidence that she or he
is the surviving spouse, as specified, the surviving spouse is to be
deemed nominated as the beneficiary by that member.
This bill would declare the intent of Legislature to enact
legislation that would address issues relating to county public
employee retirement pensions.
Vote: majority. Appropriation: no. Fiscal committee: no
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 of federal Bankruptcy Code imposes substantial
administrative costs and expenses on a municipality, potentially
exceeding several million dollars. Filing for Chapter 9 can reduce
service levels to the taxpayers and residents of a municipality. In
some circumstances, it can have major short-term and long-term fiscal
consequences for the municipality, the surrounding municipalities,
and the state. Filing for bankruptcy protection under Chapter 9
should be considered a last resort, to be instituted only after other
reasonable efforts have been made, to avoid a bankruptcy filing or
otherwise appropriately plan for it. It is in the interest of the
state, local governments, and the public that local government
entities have sufficiently sound financial capacity to provide
required services to the public and meet their contractual and other
obligations during any restructuring or financial reorganization
process. Furthermore, it is in the best interest of the public, the
state, and local government entities, the employees, investors,
bondholders, and other interest holders be included in an appropriate
restructuring process and have an adequate understanding of the
financial capacity of local government entities and their
obligations, as a clear understanding of both is necessary for any
restructuring or reorganization process.
(b) The Legislature has an interest in monitoring the conditions
under which local entities may seek Chapter 9 protection. The relief
provided through the bankruptcy process can affect state and
municipal government service levels, debt, and contracts. The
Legislature has a strong interest in ensuring adequate disclosure of
the conditions under which a municipality may seek Chapter 9
protection and providing a process to make any Chapter 9 filing as
efficient as possible.
(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 Chapter 9 process, particularly prior
to filing. So it is important for those parties to be able to
participate in a prefiling confidential mediation process that could
assist parties in reaching a settlement and avoiding a bankruptcy
filing or otherwise lead to a prenegotiated consensual plan of
readjustment.
(d) To the extent financial relief granted through Chapter 9 could
affect public employee compensation, employees have a direct
interest in the Chapter 9 process, particularly prior to filing.
Therefore, it is important for those parties to be able to
participate in a prefiling confidential mediation process that could
assist parties in reaching a settlement or otherwise lead to a
prenegotiated agreement and avoid a Chapter 9 filing.
(e) 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. Contracts reached 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, amendment or rejection in the event of a Chapter 9 bankruptcy
proceeding. However, it is the intent of the Legislature that the
rights of workers to collectively bargain shall be fully enforced and
respected in the mediation process.
(f) Currently, 23 states do not permit municipalities to file for
bankruptcy. Twenty-seven states permit municipalities to file for
bankruptcy, but most states impose standards and guidelines for
access to bankruptcy proceedings. California is one of only 10 states
that does not restrict or otherwise limit authority of its
municipalities to file for bankruptcy. At present, California offers
no opportunity for those municipalities that are insolvent to receive
state-level, prebankruptcy guidance, oversight, mediation, or
assistance. Nor does the state provide a mechanism for exchange of
current and projected financial information with public employee
representatives, debt and bondholders, and other interested parties
in a prebankruptcy setting even if these municipalities are not
currently insolvent but concerned about becoming insolvent and unable
to pay obligations as these obligations come due.
(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 assisting municipalities to address
potential insolvency with the goal of averting municipality
bankruptcy filings where possible and providing a process designed to
make the debt restructuring process in or outside of a Chapter 9
bankruptcy as cost effective and efficient as possible for all
participants.
(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, and to respect collective bargaining
agreements reached with their employees.
(j) California's taxpayers who rely on public safety, senior,
recreational, municipal health, library, and other public services as
well as those who own and operate businesses in our communities,
deserve every reasonable and appropriate effort that state and local
government can make to avoid adverse consequences of Chapter 9
bankruptcy filings, particularly where mediation may lead to
out-of-court resolution of outstanding obligations and disputes or to
a preagreed, prenegotiated plan of readjustment.
(k) Resolving municipal and state business and financial issues in
a timely, fair and cost-effective manner is an integral part of a
successful government and is in the public interest. It has long been
recognized that alternative dispute resolution proceedings, like
mediation, offer an economical, discreet, and expeditious way to
resolve potentially devastating situations.
(l) Through the mediation process, the mediator, a specially
trained, neutral third party can assist the municipality and its
creditors and stakeholders to fully explore alternatives, while
allowing the interested parties to exchange information in a
confidential environment with the assistance and supervision of a
mediator to determine whether the municipality's contractual and
financial obligations can be renegotiated on a consensual basis.
(m) The California Debt and Investment Advisory Commission is the
appropriate body to administer the mediation process in conjunction
with an appropriate alternative dispute resolution program within the
state. As a result of the commission's current statutory duties to
collect municipal finance data, conduct research, administer
educational seminars, and provide information and technical
assistance on behalf of municipalities, and given the commission's
membership, it is appropriate that the commission be able to convene
mediations, with the assistance of a neutral third-party
nongovernmental entity that will administer the mediation and train
the mediators, at the request of a municipality contemplating
restructuring or a Chapter 9 filing or by a stakeholder concerned
about the financial condition of the municipality. It is the intent
of the Legislature that the commission may consult with the Judicial
Arbitration and Mediation Services, the Executive Office for U.S.
Trustees, retired bankruptcy judges, or other appropriate entities in
establishing and administering the program.
SEC. 2. Section 8860 is added to the
Government Code , to read:
8860. The commission shall adopt mediation guidelines for
mediation relating to local public entity bankruptcy conducted
pursuant to Article 5 (commencing with Section 53760) of Chapter 4 of
Part 1 of Division 2 of Title 5. The commission may consult with the
Judicial Arbitration and Mediation Services, the Executive Office
for U.S. Trustees, the retired bankruptcy judges, or other
appropriate entities in adopting these guidelines.
SEC. 3. 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 shall not
file a petition and exercise powers pursuant to applicable
federal bankruptcy law . unless the local
public entity has participated in mediation as provided in Section
8860 and received a good faith certification from the mediator, and
if one of the following applies:
(1) The local public entity has reached
an out-of-court agreement with all interested parties regarding a
plan of adjustment pursuant to subdivision (b) of Section 53762.5.
(2) The local public entity and the interested parties were unable
to reach an out-of-court agreement and the mediator has certified in
writing that the parties have participated in mediation in good
faith, pursuant to subdivision (d) of Section 53762.5.
(3) The local public entity initiated the mediation proceeding and
interested parties did not participate in the mediation, pursuant to
subdivision (e) of Section 53762.5.
(b) A local public entity shall not file a petition and exercise
powers pursuant to subdivision (a) if either of the following occur:
(1) The mediator determines that solvency or effective debt
restructuring can be achieved through settlement with all interested
parties and that a settlement can be reached through further
mediation.
(2) The mediator determines that a local entity has failed to
participate in good faith mediation. Failure to participate in good
faith includes, but is not limited to, the failure to provide
accurate and essential financial information, the failure to attempt
to reach settlement with all interested parties to avert bankruptcy,
or evidence of manipulation to delay and obstruct a timely agreement.
(b)
(c) 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. 4. Section 53760.5 is added to the
Government Code , to read:
53760.5. (a) A local public entity may initiate a mediation when
the local public entity is or likely will become unable to meet its
financial obligations when those obligations are due or become due
and owing.
(b) Mediation shall be conducted through an alternative dispute
resolution program within the state and in accordance with mediation
guidelines adopted by the commission.
(c) The role of the mediator shall be to assist all interested
parties in reaching an equitable settlement to avert a Chapter 9
filing. The mediator shall also assist the parties in identifying the
anticipated legal costs associated with a Chapter 9 filing relative
to the local public entity's budget shortfall. The mediator may
consult with the Judicial Arbitration and Mediation Services, the
Executive Office for U.S. Trustees, retired bankruptcy judges, or
other appropriate entities in establishing and administering the
mediation.
SEC. 5. Section 53761 is added to the
Government Code , to read:
53761. (a) A mediator shall meet all of the following
qualifications:
(1) At least 10 years of high level business or legal practice
involving bankruptcy.
(2) Experience in conflict resolution.
(3) Completion of a mandatory training program in municipal
organization, municipal debt restructuring, Chapter 9 bankruptcy,
public finance, taxation, California constitutional law, California
labor law, federal labor law, and municipal finance dispute
resolution, provided through an alternative dispute resolution
program within the state.
(b) The mediator shall be impartial, objective, independent, and
free from prejudice. The mediator shall not act with partiality or
prejudice based on any participant's personal characteristics,
background, values or beliefs, or performance during mediation.
(c) The mediator shall avoid a conflict of interest or the
appearance of a conflict of interest during and after a mediation.
The mediator shall make a reasonable inquiry to determine whether
there are any facts that a reasonable individual would consider
likely to create a potential or actual conflict of interest. Prior to
mediation, the mediator shall not establish another relationship
with any of the parties in a manner that would raise questions about
the integrity of the mediation, except that the mediator may conduct
further mediations regarding other potential local public entities
that may involve some of the same or similar constituents to a prior
mediation.
(d) The mediator shall conduct the mediation in a manner that
promotes voluntary, uncoerced decisionmaking in which each party
makes free and informed choices regarding the process and outcome.
(e) The mediator shall not impose a settlement on the parties. The
mediator shall use his or her best efforts to assist the parties to
reach a satisfactory resolution of their disputes. Subject to the
discretion of the mediator, the mediator may make oral or written
recommendations for settlement or plan of readjustment to a party
privately or, if the parties agree, to all parties jointly.
(f) The mediator has a duty to instruct and inform the local
public entity and all parties of the limitations of Chapter 9
relative to other chapters of the bankruptcy codes. This instruction
shall highlight the limited authority of United States bankruptcy
judges in Chapter 9 such as the lack of flexibility available to
judges to reduce or cram down debt repayments and similar efforts not
available to reorganize the operations of the city, that may be
available to a corporate entity.
(g) The mediator shall request from the parties documentation and
other information that the mediator believes may be helpful in
assisting the parties to address the obligations between them.
(h) In the event a complete settlement of all or some issues in
dispute is not achieved within the scheduled mediation session or
sessions, the mediator may, at the mediator's discretion, continue to
communicate with the parties in an ongoing effort to facilitate a
complete settlement in order to avoid a Chapter 9 filing.
(i) The mediator shall provide council and guidance to all parties
and shall not be a legal representative of any party and shall not
have a fiduciary duty to any party.
(j) In the event of a settlement with all interested parties, the
mediator may assist the parties in negotiating a prepetition,
preagreed plan of readjustment in connection with a potential Chapter
9 filing.
(k) The mediator shall maintain the confidentiality of all the
information obtained by the mediator in mediation, unless otherwise
agreed to by the parties.
SEC. 6. Section 53761.5 is added to the
Government Code , to read:
53761.5. The parties shall exchange all documents including
current financial information and projections addressing future
financial obligations affecting the local public entity or that may
hinder a resolution of the issues before the mediator. The mediator
may request the submission or exchange of memoranda on issues,
including the underlying interests, and the history of the parties'
prior negotiations. Information that a party wishes to keep
confidential may be sent to the mediator in a separate communication
clearly marked "CONFIDENTIAL."
SEC. 7. Section 53762 is added to the
Government Code , to read:
53762. (a) Each interested party shall provide at least one
representative of each party to attend all mediation conferences.
Each party's representative shall have authority to settle and
resolve disputes or shall be in a position to present any proposed
settlement or plan of readjustment to the governing body or
membership for approval and implementation.
(b) The local public entity shall provide a local public entity
representative who shall represent the local public entity's interest
in the mediation and who shall propose any settlement or plan of
readjustment to the governing body of the local public entity.
(c) An interested party may be represented by legal counsel, but
must inform all parties of the representation.
(d) The parties shall participate in the mediation in good faith.
If the mediator determines that a representative of one or more of
the parties is not participating in good faith, the mediator may
request that a substitute representative or representatives be
appointed.
(e) The parties shall maintain the confidentiality of the
mediation and shall not disclose statements made, information
disclosed, or documents prepared or produced, during the mediation
process, as specified in Sections 1119, 1120, 1121, and 1122 of the
Evidence Code, unless all parties consent in writing to the
disclosure.
SEC. 8. Section 53762.5 is added to the
Government Code , to read:
53762.5. Mediation shall end if any of the following occur:
(a) The parties execute an agreement of settlement.
(b) The parties reach an agreement or proposed plan of
readjustment that requires the approval of a bankruptcy judge.
(c) The mediator certifies in writing that one or more of the
parties has not participated in good faith, that no resolution has
been reached, and that further efforts at mediation would not
contribute to a resolution of the parties' dispute.
(d) The mediator certifies in writing that the parties have
participated in good faith but the parties have reached an impasse
and further efforts at mediation would not contribute to a resolution
of disputes.
(e) The mediator certifies in writing that a mediation was
initiated by the local public entity but that no interested parties
participated.
SEC. 9. Section 53763 is added to the
Government Code , to read:
53763. As used in this article the following terms have the
following meanings:
(a) "Chapter 9" means Chapter 9 (commencing with Section 901) of
Title 11 of the United States Code.
(b) "Claim" means either of the following:
(1) A right to payment, whether or not the right is reduced to
judgment, liquidated, unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal, equitable, secured, or
unsecured.
(2) A right to an equitable remedy for breach of performance if
the breach gives rise to a right to payment, whether or not the right
to an equitable remedy is reduced to judgment, fixed, contingent,
matured, unmatured, disputed, undisputed, secured, or unsecured.
(c) "Collective bargaining" means the process by which workers
exercise their right to negotiate with an entity's or organization's
management in a good-faith process to establish employee
compensation, working conditions, and other matters of mutual
interest.
(d) "Collective bargaining agreement" means a written, legally
enforceable contract for a specified period, between the management
of an entity or organization and its employees represented by a
recognized union. It sets down and defines conditions of employment,
including, but not limited to, wages, working hours and conditions,
overtime payments, holidays, vacations, health benefits, retirement
benefits, and procedures for dispute resolution.
(e) "Commission" means the California Debt and Investment Advisory
Commission.
(f) "Creditor" means either of the following:
(1) An entity that has a claim against a municipality that arose
at the time of or before the commencement of the mediation process
and whose claim represents at least 5 percent of the municipality's
general fund obligations.
(2) An entity that may have a claim against the municipality
arising out of rejection of an executory contract or unexpired lease
in a Chapter 9 case and whose claim represents at least 5 percent the
municipality's general fund obligations.
(g) "Debtor" means a local public entity that may file for
bankruptcy under Chapter 9.
(h) "Good faith" means participation by a party in the mediation
process with the intent to negotiate toward a resolution of the
issues that are the subject of the mediation, including, but not
limited to, the timely provision of complete and accurate information
to provide the relevant parties through mediation with sufficient
information, in a confidential manner, to negotiate the readjustment
of the municipality's debt.
(i) "Indenture trustee" means a trustee under a mortgage, deed of
trust, or indenture, under which there is an outstanding security
other than a voting-trust certificate, constituting a claim against
the municipality.
(j) "Interested party" means a trustee, a committee of creditors,
a creditor, an indenture trustee, a pension fund, a bondholder, or a
union who under its collective bargaining agreements has standing to
initiate contract or debt restructuring negotiations with the
municipality.
(k) "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 (4) 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.
(l) "Local public entity representative" means the person or
persons designated by the local public agency with authority to make
recommendations and to attend the mediation on behalf of the
governing body of the municipality.
SEC. 10. The Legislature finds and declares that
Sections 6 and 7 of this act, which add Sections 53761.5 and 53762.5
to the Government Code, impose a limitation on the public's right of
access to the meetings of public bodies or the writings of public
officials and agencies within the meaning of Section 3 of Article I
of the California Constitution. Pursuant to that constitutional
provision, the Legislature makes the following findings to
demonstrate the interest protected by this limitation and the need
for protecting that interest:
To facilitate the process to avoid municipal bankruptcy, it is
necessary to provide for secure documents.
SECTION 1. Section 31458.2 of the Government
Code is amended to read:
31458.2. If, after December 31, 1957, and either before or after
retirement a member dies leaving a spouse and has not designated a
beneficiary, and, prior to the payment of any portion of the death
benefit, that spouse files with the board written evidence,
satisfactory to the board, that she or he is the surviving spouse and
the date of the marriage, that surviving spouse shall be deemed, for
the purposes of this chapter, to have been nominated as the
beneficiary by that member.