BILL NUMBER: AB 506 AMENDED BILL TEXT AMENDED IN SENATE JUNE 29, 2011 AMENDED IN ASSEMBLY MAY 31, 2011 AMENDED IN ASSEMBLY MARCH 31, 2011 INTRODUCED BY Assembly Member Wieckowski FEBRUARY 15, 2011 An act to amend Section 53760 of, and to add Sections 8860, 53760.3, 53760.5, 53761, 53761.3, 53761.5, 53762, 53762.5, 53762.6, 53762.7, 53762.8, and 53763 to, the Government Code, relating to local government. LEGISLATIVE COUNSEL'S DIGEST AB 506, as amended, Wieckowski. Local government: bankruptcy: neutral evaluation. 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 a neutral evaluation process with interested parties, as defined, has received a certificate of good faith participation, and if the neutral evaluation results in either an agreement for debt readjustment, or if the neutral evaluator certifies in writing that continued neutral evaluation 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 provide technical assistance as a neutral third party as necessary in any neutral evaluation process, as specified. The bill would require the State Auditor to review specified information submitted by the local public entity. The bill would additionally provide an alternative process that a local public entity may use to fill under federal bankruptcy law if the local public entity has been participating in the neutral evaluation process and the local public entity has submitted certain information to the State Auditor and the State Auditor has determined that the local public entity is insolvent. 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 localgovernmentgovernmental entities. Seeking financial relief through the provisions of Chapter 9 of the federal Bankruptcy Code imposes substantial administrative costs and expenses on a municipality, potentially exceeding several million dollars. In order for a municipality to be a debtor under Chapter 9, the municipalityshallmust make certain showings required by subdivision (c) of Section 109 of Title 11 of the United State Code, that include, but are not limited to, establishing that the municipality is insolvent, the municipally desires to effect a plan to adjust its debts, and that the municipality has negotiated in good faith or attempted to negotiate in good faith with its creditors, as specified in that section. (b) Filing for Chapter 9 can reduce service levels to the taxpayers and residents of a municipality. In some circumstances, it can have majorshort-termshort 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 localgovernmentgovernmental 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 localgovernmentgovernmental entities, the employees, investors, bondholders, and other interestholders be included in an appropriate restructuring process and have an adequate understanding of the financial capacity of localgovernmentgovernmental entities and their obligations, as a clear understanding of both is necessary for any restructuring or reorganization process. (c) 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. (d) 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 neutral evaluation process that could assist parties in reaching a settlement and avoiding a bankruptcy filing or otherwise lead to a prenegotiated consensual plan of readjustment as clearly contemplated by subdivision (c) of Section 109 of Title 11 of the United States Code. (e) 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 neutral evaluation process that could assist parties in reaching a settlement or otherwise lead to a prenegotiated agreement and avoid a Chapter 9 filing. (f) 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 neutral evaluation process. (g) 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, neutral evaluation, 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. As a result, there is no process in this state requiring potential Chapter 9 debtors to qualify as Chapter 9 debtors, leaving these cases subject to motions to dismiss on any number of grounds, thus delaying earlier resolution and increasing administrative fees , legal fees, and costs. (h) State intervention in local affairs should only occur in exceptional circumstances and not without a compelling interest of statewide concern. (i) 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. (j) 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. (k) 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 a neutral evaluation may lead to out-of-court resolution of outstanding obligations and disputes or to a preagreed, prenegotiated plan of readjustment. (l) 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 a neutral evaluation, offer an economical, discreet, and expeditious way to resolve potentially devastating situations. (m) Through the neutral evaluation process, the neutral evaluator, 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 neutral evaluator to determine whether the municipality's contractual and financial obligations can be renegotiated on a consensual basis. (n) The California Debt and Investment Advisory 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 provide technical assistance as a neutral party 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. SEC. 2. Section 8860 is added to the Government Code, to read: 8860. The commission shall, when requested by a local public agency or a neutral evaluator, serve as a neutral third party to provide technical assistance in any neutral evaluation process conducted pursuant to Article 5 (commencing with Section 53760) of Chapter 4 of Part 1 of Division 2 of Title 5. 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 shall not file a petition and exercise powers pursuant to applicable federal bankruptcy law unless the local public entity has participated in the neutral evaluation process as provided inSection 8860this article and received a good faith certification from the neutral evaluator, 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 neutral evaluator has certified in writing that the parties have participated in the neutral evaluation process in good faith, pursuant to subdivision (d) of Section 53762.5. (3) The local public entity initiated the neutral evaluation process and interested parties did not participate in the neutral evaluation process, pursuant to subdivision (e) of Section 53762.5 and has disclosed documents arising from the process required bySection 8860this article . (b) A local public entity shall not file a petition and exercise powers pursuant to subdivision (a) if the neutral evaluator determines that a local entity has failed to participate in the neutral evaluation process in good faith. 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. (c) As used in this article, "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. For purposes of this article, "local public entity" does not include a school district. SEC. 4. Section 53760.3 is added to the Government Code, to read: 53760.3. (a) A local public entity may initiate the neutral evaluation process pursuant to this article. A neutral evaluator shall oversee the neutral evaluation process, and shall facilitate all of the requirements set forth in subdivision (b). (b) (1) The local public entity shall make complete disclosure of all documentation necessary to clearly demonstrate whether the local public entity is solvent, including, but not limited to, financial reports, expenditures, assets, and any other relevant documentation. (2) The local public entity and any interested party shallmakepresent information to each other, which shall include, but is not limited to, the status of funds of the local public agency that clearly distinguishes between general funds and special funds. (3) The local public entity and any interested party shall present its proposed plan of readjustment. (4) The local public entity and any interested party shall negotiate in good faith. (c) The neutral evaluation process shall be confidential, and is subject toSection 703.5 and Chapter 2 (commencing with Section 1115) of Division 9 of the Evidence Code.Section 53762.8. SEC. 5. Section 53760.5 is added to the Government Code, to read: 53760.5. (a) A local public entity may initiate the neutral evaluation process 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) A neutral evaluation shall be conducted through an alternative dispute resolution program within the state and in accordance withSection 8860this article . (c) The role of the neutral evaluator shall be to assist all interested parties in reaching an equitable settlement to avert a Chapter 9 filing. The neutral evaluator 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 neutral evaluator may consult with alternate dispute resolution service providers, the California Debt and Investment Advisory Commission, the California State Mediation and Conciliation Service, the Executive Office for U.S. Trustees, retired bankruptcy judges, or other appropriate entities in establishing and administering the neutral evaluation regarding issues that are not confidential. SEC. 6. Section 53761 is added to the Government Code, to read: 53761. (a) A neutral evaluator shall meet all of the following qualifications: (1) At least 10 years of high level business or legal practice involving bankruptcy. (2) Experience and training in conflict resolution and alternative dispute 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 neutral evaluator shall be impartial, objective, independent, and free from prejudice. The neutral evaluator shall not act with partiality or prejudice based on any participant's personal characteristics, background, values or beliefs, or performance during the neutral evaluation process. (c) (1) The neutral evaluator shall avoid a conflict of interest or the appearance of a conflict of interest during the neutral evaluation process. The neutral evaluator 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. Notwithstanding subdivision (b) of Section 53761.3, if the neutral evaluator is informed of the existence of any facts that a reasonable individual would consider likely to create a potential or actual conflict of interest, the neutral evaluator shall disclose these facts in writing to the local public entity and all interested parties involved in the neutral evaluation. If any party to the neutral evaluation objects to the neutral evaluator, that party shall notify all other parties to the neutral evaluation, including the neutral evaluator, within 15 days of receipt of the notice from the neutral evaluator, the neutral evaluator shall withdraw and a new neutral evaluator shall be selected pursuant to subdivision (a) of Section 53761.3. (2) Prior to the neutral evaluation process, the neutral evaluator shall not establish another relationship with any of the parties in a manner that would raise questions about the integrity of the neutral evaluation, except that the neutral evaluator may conduct further neutral evaluations regarding other potential local public entities that may involve some of the same or similar constituents to a prior mediation. (d) The neutral evaluator shall conduct the neutral evaluation process in a manner that promotes voluntary, uncoerced decisionmaking in which each party makes free and informed choices regarding the process and outcome. (e) The neutral evaluator shall not impose a settlement on the parties. The neutral evaluator 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 neutral evaluator, the neutral evaluator may make oral or written recommendations for settlement or plan of readjustment to a party privately or to all parties jointly. (f) The neutral evaluator 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 neutral evaluator may request from the parties documentation and other information that the neutral evaluator 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 neutral evaluation session or sessions, the neutral evaluator may, at the neutral evaluator'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 neutral evaluator shall provide counsel 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 neutral evaluator may assist the parties in negotiating a prepetition, preagreed plan of readjustment in connection with a potential Chapter 9 filing. (k) The neutral evaluator shall maintain the confidentiality of all the information obtained by the neutral evaluator in the neutral evaluation process, unless otherwise agreed to by the parties. The neutral evaluation shall be subject to Chapter 2 (commencing with Section 1115) of Division 9 of the Evidence Code. SEC. 7. Section 53761.3 is added to the Government Code , to read: 53761.3. (a) The parties shall select a neutral evaluator through a mutually agreed upon process. (b) If at any time during the neutral evaluation process the local public entity and a majority of interested parties wish to remove the neutral evaluator, the local public entity or any interested party may make a request to the other interested parties to remove the neutral evaluator. If the local public entity and the majority of the interested parties agree that the neutral evaluator should be removed, the parties shall select a new neutral evaluator pursuant to subdivision (a).SEC. 7.SEC. 8. 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 neutral evaluator. The neutral evaluator 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 neutral evaluator in a separate communication clearly marked "CONFIDENTIAL."SEC. 8.SEC. 9. 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 neutral evaluation 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 neutral evaluation and who shall be in a position to 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 maintain the confidentiality of the neutral evaluation process and shall not disclose statements made, information disclosed, or documents prepared or produced, during the neutral evaluationprocessprocess, as specified inSections 1119, 1120, 1121, and 1122 of the Evidence Code, unless all parties consent in writing to the disclosureSection 53762.8 . This subdivision does not apply to documents that were not confidential prior to the start of the neutral evaluation process.SEC. 9.SEC. 10. Section 53762.5 is added to the Government Code, to read: 53762.5. The neutral evaluation process 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 neutral evaluator 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 the neutral evaluation process would not contribute to a resolution of the parties' dispute. (d) The neutral evaluator certifies in writing that the parties have participated in good faith but the parties have reached an impasse and further efforts at the neutral evaluation process would not contribute to a resolution of disputes. (e) The neutral evaluator certifies in writing that a neutral evaluation was initiated by the local public entity but that no interested parties participated. SEC. 11. Section 53762.6 is added to the Government Code , to read: 53762.6. (a) Once a local public entity has initiated the neutral evaluation process pursuant to this article, to help ensure that a local public entity meets the insolvency requirement in subdivision (c) of Section 109 of Title 11 of the United States Code and to assist the local public entity and the interested parties in the neutral evaluation process, the local public entity may submit information to the State Auditor describing the public entity's current financial position. This information shall include all of the following: (1) The local public entity's revenues and estimated revenues for the relevant time period. (2) The local public entity's anticipated ongoing expenses. (3) The local public entity's proposed plan for restoring the soundness of the local public entity's financial position, if they have one. (4) An itemized list of creditors that may be impaired or may seek damages as a result of the proposed plan to restore the soundness of the local public entity's financial position. (5) Any additional information the auditor deems necessary to complete the audit in a timely manner. (b) Upon receipt of the analyses information described in subdivision (a), 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. (c) Any audit initiated under this section shall take precedent over any pending audit requested under subdivision (b) of Section 8546.1. (d) 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) The auditor's report developed pursuant to this section shall become public at the time of filing for bankruptcy or prior to filing at the public entity's discretion. SEC. 12. Section 53762.7 is added to the Government Code , to read: 53762.7. (a) Notwithstanding Section 53760, a local public entity may file a petition and exercise powers pursuant to applicable federal bankruptcy laws if both of the following conditions are met: (1) The State Auditor determines that the local public entity is insolvent, as defined in subparagraph (C) of subdivision (32) of Section 101 of Title 11 of the United States Code. (2) The local public entity has been participating in a neutral evaluation with interested parties for at least 90 days. (b) If a local public entity files a petition and exercises powers pursuant to applicable federal bankruptcy laws pursuant to subdivision (a), the court shall not consider whether that filing meets the requirements of Section 53760. SEC. 13. Section 53762.8 is added to the Government Code , to read: 53762.8. (a) No evidence of anything said or any admission made for the purpose of, in the course of, or pursuant to, a neutral evaluation is admissible or subject to discovery, and disclosure of the evidence shall not be compelled, in any arbitration, administrative adjudication, civil action, or other noncriminal proceeding in which, pursuant to law, testimony can be compelled to be given. (b) No writing, as defined in Section 250 of the Evidence Code, that is prepared for the purpose of, in the course of, or pursuant to a neutral evaluation is admissible or subject to discovery, and disclosure of the writing shall not be compelled, in any arbitration, administrative adjudication, civil action, or other noncriminal proceeding in which, pursuant to law, testimony can be compelled to be given. (c) All communications, negotiations, or settlement discussions by and between participants in the course of a neutral evaluation shall remain confidential. (d) Evidence otherwise admissible or subject to discovery outside of a neutral evaluation shall not be or become inadmissible or protected from disclosure solely by reason of its introduction or use in a neutral evaluation. (e) Neither a mediator neutral evaluator nor any other person may submit to a court or other adjudicative body, and a court or other adjudicative body may not consider, any report, assessment, evaluation, recommendation, or finding of any kind by the neutral evaluator concerning a neutral evaluation conducted by the neutral evaluator, unless the information is deemed necessary by a judge presiding over a bankruptcy proceeding pursuant to Chapter 9 of Title 11 of the United States Code to determine eligibility of a municipality to proceed with a bankruptcy proceeding pursuant to Chapter 9 of Title 11 of the United States Code or unless all parties to the neutral evaluation expressly agree otherwise. (f) A communication or a writing, as defined in Section 250 of the Evidence Code, that is made or prepared for the purpose of, or in the course of, or pursuant to a neutral evaluation is not made inadmissible, or protected from disclosure, by provisions of this chapter if either of the following conditions is satisfied: (1) All persons who conduct or otherwise participate in the neutral evaluation expressly agree in writing, or orally in accordance with Section 1118 of the Evidence Code, to disclosure of the communication, document, or writing. (2) The communication, document, or writing was prepared by or on behalf of fewer than all the neutral evaluation participants, those participants expressly agree to its disclosure, and the communication, document, or writing does not disclose anything said or done or any admission made in the course of the neutral evaluation. (g) A written settlement agreement prepared in the course of, or pursuant to, a neutral evaluation, is not made inadmissible, or protected from disclosure, by provisions of this section if the agreement is signed by the settling parties and any of the following conditions are satisfied: (1) The agreement provides that it is admissible or subject to disclosure, or words to that effect. (2) The agreement provides that it is enforceable or binding or words to that effect. (3) All parties to the agreement expressly agree to its disclosure. (4) The agreement is used to show fraud, duress, or illegality that is relevant to an issue in dispute. (h) An oral agreement made in the course of, or pursuant to, a neutral evaluator is not made inadmissible, or protected from disclosure, by the provisions of this chapter if any of the following conditions are satisfied: (1) The oral agreement is recorded by a court reporter or reliable means of audio recording. (2) The terms of the oral agreement are recited on the record in the presence of the parties and the mediator, and the parties express on the record that they agree to the terms recited. (3) The parties to the oral agreement expressly state on the record that the agreement is enforceable or binding, or words to that effect. (4) The recording is reduced to writing and the writing is signed by the parties within 72 hours after it is recorded. (5) The agreement is used to show fraud, duress, or illegality that is relevant to an issue in dispute. (i) Anything said, any admission made, or any writing that is inadmissible, protected from disclosure, and confidential under this chapter before a neutral evaluation ends, shall remain inadmissible, protected from disclosure, and confidential to the same extent after the neutral evaluation ends. (j) If a person subpoenas or otherwise seeks to compel a neutral evaluator to testify or produce a writing, as defined in Section 250 of the Evidence Code, and the court or other adjudicative body determines that the testimony or writing is inadmissible under this section, or protected from disclosure under this section, the court or adjudicative body making the determination shall award reasonable attorney's fees and costs to the neutral evaluator against the person seeking the testimony or writing. (k) Any reference to a neutral evaluation during any subsequent trial is an irregularity in the proceedings of the trial for the purposes of Section 657 of the Code of Civil Procedure. Any reference to a neutral evaluation during any other subsequent noncriminal proceeding is grounds for vacating or modifying the decision in that proceeding, in whole or in part, and granting a new or further hearing on all or part of the issues, if the reference materially affected the substantial rights of the party requesting relief.SEC. 10.SEC. 14. 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) "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 neutral evaluation 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. (f) "Debtor" means a local public entity that may file for bankruptcy under Chapter 9. (g) "Good faith" means participation by a party in the neutral evaluation process with the intent to negotiate toward a resolution of the issues that are the subject of the neutral evaluation process, including, but not limited to, the timely provision of complete and accurate information to provide the relevant parties through the neutral evaluation process with sufficient information, in a confidential manner, to negotiate the readjustment of the municipality's debt. (h) "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. (i) "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. (j) "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)(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. (k) "Local public entity representative" means the person or persons designated by the local public agency with authority to make recommendations and to attend the neutral evaluation on behalf of the governing body of the municipality. SEC. 15. The Legislature finds and declares that the duties of the State Auditor that arise under Section 53762.6 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 (d) of Section 53762.6 of the Government Code.SEC. 11.SEC. 16. 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.