BILL NUMBER: AB 1692	AMENDED
	BILL TEXT

	AMENDED IN ASSEMBLY  MAY 2, 2012
	AMENDED IN ASSEMBLY  APRIL 16, 2012

INTRODUCED BY   Assembly Member Wieckowski

                        FEBRUARY 15, 2012

   An act to amend Sections 53760.1 and 53760.3 of the Government
Code, relating to bankruptcy.


	LEGISLATIVE COUNSEL'S DIGEST


   AB 1692, as amended, Wieckowski. Bankruptcy. 
   Existing law suspended various activities of redevelopment
agencies and prohibited those agencies from incurring indebtedness
for a specified period. Existing law dissolved redevelopment agencies
on February 1, 2012, and provides for the designation of successor
agencies, as defined. Existing law requires successor agencies to
wind down the affairs of the dissolved redevelopment agencies and to,
among other things, repay enforceable obligations, as defined, and
to remit unencumbered balances of redevelopment agency funds,
including housing funds, to the county auditor-controller for
distribution to taxing entities. 
   Existing law authorizes a local public entity, as defined, to file
a petition and exercise powers pursuant to applicable federal
bankruptcy law, subject to specified procedures, including
participation in a neutral evaluation process with interested
parties, as defined, or upon a declaration of fiscal emergency, as
specified. Existing law prohibits the neutral evaluation established
by this process from  lasting   exceeding 
more than 60 days following the date the neutral evaluator is
selected, unless the local public entity or a majority of
participating interested parties elect to extend the process for up
to 30 additional days. 
   This bill would authorize a successor agency to file for
bankruptcy under applicable federal bankruptcy law, subject to
existing procedures. 
   This bill would revise and recast the bankruptcy procedures that
apply to the neutral evaluation process. The bill would authorize the
neutral evaluator to toll the limitation period for the neutral
evaluation process based upon a finding that the local public entity
or any interested parties' conduct in presenting information required
under this process prevented the parties from effectively proceeding
in the neutral evaluation process. The bill would authorize the
neutral evaluator to request and control the process of an
independent investigation, as specified.  The bill would
further authorize the neutral evaluator to grant an extension of the
process beyond 90 days if requested by the majority of the
participating interested parties.  The bill would provide
that the neutral evaluation process shall end upon a specified
circumstance.
   Vote: majority. Appropriation: no. Fiscal committee:  yes
  no  . State-mandated local program: no.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

  SECTION 1.  Section 53760.1 of the Government Code is amended to
read:
   53760.1.  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) "Creditor" means either of the following:
   (1) An entity that has a noncontingent 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
five million dollars ($5,000,000) or comprises more than 5 percent of
the local public entity's debt or obligations, whichever is less.
   (2) An entity that would have a noncontingent claim against the
municipality upon the rejection of an executory contract or unexpired
lease in a Chapter 9 case and whose claim would represent at least
five million dollars ($5,000,000) or comprises more than 5 percent of
the local public entity's debt or obligations, whichever is less.
   (c) "Debtor" means a local public entity that may file for
bankruptcy under Chapter 9.
   (d) "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 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.
   (e) "Interested party" means a trustee, a committee of creditors,
an affected creditor, an indenture trustee, a pension fund, a
bondholder, a union that, under its collective bargaining agreements,
has standing to initiate contract or debt restructuring negotiations
with the municipality, or a representative selected by an
association of retired employees of the public entity who receive
income from the public entity convening the neutral evaluation. A
local public entity may invite holders of contingent claims to
participate as interested parties in the neutral evaluation if the
local public entity determines that the contingency is likely to
occur and the claim may represent five million dollars ($5,000,000)
or comprise more than 5 percent of the local public entity's debt or
obligations, whichever is less.
   (f) "Local public entity" means any county, city, district, public
authority, public agency,  a successor agency, as defined in
Section 34171 of the Health and Safety Code,  or other
entity, without limitation, that is a municipality as defined in
Section 101(40) 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.
   (g) "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.
   (h) "Neutral evaluation" is a form of alternative dispute
resolution that is imposed upon the parties and is a means whereby a
neutral evaluator considers the arguments and information presented
by the parties and offers a nonbinding opinion meant to assist in the
resolution of the issue or issues in dispute.
  SEC. 2.  Section 53760.3 of the Government Code is amended to read:

   53760.3.  (a) A local public entity may initiate the neutral
evaluation process if the local public entity is or likely will
become unable to meet its financial obligations as and when those
obligations are due or become due and owing. The local public entity
shall initiate the neutral evaluation by providing notice by
certified mail of a request for neutral evaluation to all interested
parties as defined in Section 53760.1.
   (b) Interested parties shall respond within 10 business days of
receipt of notice of the local public entity's request for neutral
evaluation indicating their agreement to participate in the neutral
evaluation process.
   (c) (1) The local public entity and the interested parties
agreeing to participate in the neutral evaluation shall, through a
mutually agreed upon process, select the neutral evaluator to oversee
the neutral evaluation process and facilitate all discussions in an
effort to resolve their disputes. The process shall include, but not
be limited to, an opportunity for any interested party to submit
neutral evaluators for consideration by the interested parties.
   (2) If the local public entity and interested parties fail to
agree on a neutral evaluator selection process pursuant to paragraph
(1) within seven days after the interested parties have responded to
the notification sent by the public entity, the public entity shall
select five qualified neutral evaluators and provide their names,
references, and backgrounds to the participating interested parties.
Within three business days, a majority of participating interested
parties may strike up to four names from the list. If a majority of
participating interested parties strikes four names, the remaining
candidate shall be the neutral evaluator. If the majority of
participating parties strikes fewer than four names, the local public
entity may choose which of the remaining candidates shall be the
neutral evaluator.
   (d) A neutral evaluator shall have experience and training in
conflict resolution and alternative dispute resolution and shall meet
at least one of the following qualifications:
   (1) At least 10 years of high-level business or legal practice
involving bankruptcy or service as a United States Bankruptcy Judge.
   (2) Professional experience or training in municipal finance and
one or more of the following issue areas:
   (A) Municipal organization.
   (B) Municipal debt restructuring.
   (C) Municipal finance dispute resolution.
   (D) Chapter 9 bankruptcy.
   (E) Public finance.
   (F) Taxation.
   (G) California constitutional law.
   (H) California labor law.
   (I) Federal labor law.
   (e) 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.
   (f) 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 (o), 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 (c) of
Section 53761.3.
   (g) 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.
   (h) 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.
   (i) 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.
   (j) The neutral evaluator shall inform the local public entity and
all parties of the provisions 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.
   (k) 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. This documentation may include the status
of funds of the local public entity that clearly distinguishes
between general funds and special funds, and the proposed plan of
readjustment prepared by the local public entity. The neutral
evaluator may toll the limitation period for the neutral evaluation
process based upon a finding that the local public entity or any
interested parties' conduct in presenting information required
pursuant to this subdivision prevented the parties from effectively
proceeding in the neutral evaluation process.
   (l) The neutral evaluator may request and control the process of
an independent investigation in an effort to obtain meaningful
financial information and explore other areas of recovery.
   (m) The neutral evaluator shall provide counsel and guidance to
all parties, shall not be a legal representative of any party, and
shall not have a fiduciary duty to any party.
   (n) In the event of a settlement with all interested parties, the
neutral evaluator may assist the parties in negotiating a
prepetitioned, preagreed plan of readjustment in connection with a
potential Chapter 9 filing.
   (o) If at any time during the neutral evaluation process the local
public entity and a majority of the representatives of the
interested parties participating in the neutral evaluation 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.
   (p) The local public entity and all interested parties
participating in the neutral evaluation process shall negotiate in
good faith.
   (q) The local public entity and interested parties shall provide a
representative of each party to attend all neutral evaluation
sessions. Each representative shall have the authority to settle and
resolve disputes or shall be in a position to present any proposed
settlement or plan of readjustment to the parties participating in
the neutral evaluation.
   (r) 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 evaluation process, at the conclusion of the neutral
evaluation process or during any bankruptcy proceeding unless either
of the following occur:
   (1) All persons that 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 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 Section 109(c) of
Title 11 of the United States Code.
   (s)  (1)    The neutral
evaluation established by this process shall not last for more than
60 days following the date the evaluator is selected, unless the
local public entity or a majority of participating interested parties
elect to extend the process for up to 30 additional days. The
neutral evaluation process shall not last for more than 90 days
following the date the evaluator is selected unless the local public
entity and a majority of the interested parties agree to an
extension. 
   (2) Notwithstanding paragraph (1), the neutral evaluator may grant
an extension beyond 90 days if requested by the majority of the
participating interested parties. 
   (t) The local public entity shall pay 50 percent of the costs of
neutral evaluation, including but not limited to the fees of the
evaluator, and the creditors shall pay the balance, unless otherwise
agreed to by the parties.
   (u) The neutral evaluation process shall end if any of the
following occur:
   (1) The parties execute a settlement agreement.
   (2) The parties reach an agreement or proposed plan of
readjustment that requires the approval of a bankruptcy judge.
   (3) The neutral evaluation process has exceeded 60 days following
the date the neutral evaluator was selected, the parties have not
reached an agreement, and neither the local public entity or a
majority of the interested parties elect to extend the neutral
evaluation process past the initial 60-day time period.
   (4) The local public entity initiated the neutral evaluation
process pursuant to subdivision (a) and received no responses from
interested parties within the time specified in subdivision (b).
   (5) The fiscal condition of the local public entity deteriorates
to the point that a fiscal emergency is declared pursuant to Section
53076.5 and necessitates the need to file a petition and exercise
powers pursuant to applicable federal bankruptcy law.
   (6) The neutral evaluation process has exceeded the agreed upon
period pursuant to subdivision (s), the parties have not reached an
agreement, and neither the local public entity or a majority of the
interested parties elect to extend the neutral evaluation process
past the agreed upon period.
   (v) If the 60-day time period for neutral evaluation has expired,
including any extension of the neutral evaluation past the initial
60-day time period pursuant to subdivision (s), and the neutral
evaluation is complete with differences resolved, the neutral
evaluation shall be concluded. If the neutral evaluation process does
not resolve all pending disputes with creditors the local public
entity may file a petition and exercise powers pursuant to applicable
federal bankruptcy law if, in the opinion of the governing board of
the local public entity, a bankruptcy filing is necessary.