BILL ANALYSIS
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UNFINISHED BUSINESS
Bill No: SB 88
Author: DeSaulnier
Amended: 9/4/09
Vote: 21
PRIOR SENATE VOTES NOT RELEVANT
ASSEMBLY FLOOR : 47-28, 9/8/09 - See last page for vote
SUBJECT : Local government: bankruptcy
SOURCE : Author
DIGEST : Assembly Amendments deleted the Senate version
of the bill expressing the intent of the Legislature to
enact statutory changes relating to the Budget Act of 2009.
The bill now has the contents of AB 155 (Mendoza) with some
changes. This bill prohibits a local public entity, as
defined, from exercising its rights under applicable
federal bankruptcy law unless granted approval by the
California Debt and Investment Advisory Commission (CDIAC),
and specifies procedures in which the local public entity
may override a decision of denial by CDIAC.
ANALYSIS : Federal bankruptcy law for public agencies
(Chapter 9) gives government debtors time to come up with
repayment plans, providing them a breathing spell from
creditors' collection efforts. Unlike private bankruptcy
law (Chapter 11), however, municipal bankruptcy law must
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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], 2002).
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
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finance officials, two Assembly Members, and two Senators.
The State Treasurer serves as the Chairperson and appoints
the two local government officials. The Assembly Speaker
appoints the Assembly's representatives and the Senate
Rules Committee appoints the Senate's representatives.
In response to concerns about the City of Vallejo's recent
decision to file bankruptcy and the potential for
additional municipal bankruptcy filings, labor unions and
others want to require state oversight of local
governments' bankruptcy petitions.
This bill:
1.Allows a local public entity, if CDIAC approves, to file
a petition and exercise powers pursuant to applicable
federal bankruptcy law (chapter 9).
2.Requires CDIAC, upon request of a local public entity,
to advise, and if deemed appropriate by CDIAC, grant
approval to the local public entity to exercise its
right pursuant to chapter 9.
3.Provides that if CDIAC denies a local public entity's
request the governing body of a local public entity may
do either of the following:
A. Reapply to CDIAC, which includes adopting
another resolution and submit documentation to
address the deficiencies identified by CDIAC.
B. Hold a public hearing to override the decision
adopted by CDIAC and adopt a resolution to declare
the public entity's intent to exercise authority
pursuant to applicable federal bankruptcy law.
4.Requires, at the public hearing to override the decision
by CDIAC, the governing body to make public findings
about the necessity to override the decision of CDIAC.
5.Provides that if the governing body votes to exercise
its authority to file chapter 9 and makes findings to
that effect, both CDIAC's findings and the local public
entity's findings shall be submitted along with any
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filing of a petition for bankruptcy.
6.Requires, when requesting approval to file chapter 9, a
local public entity to submit to CDIAC all of the
following:
A. A resolution or ordinance adopted by that
governing body at a public hearing held pursuant to
the Ralph M. Brown Act that does both of the
following:
(1) Requests authority through state law to
petition the federal bankruptcy court for
financial relief under the provisions of chapter
9 in federal law.
(2) Acknowledges that the state's fiscal and
financial responsibilities are not changed by
the application or CDIAC's decision.
B. A thorough analysis of the entity's request to
petition under the provisions of chapter 9 in federal
law; in addition to any other information it may
provide, the entity shall do all of the following:
(1) Demonstrate that it is or will be unable
to pay its undisputed debts.
(2) Demonstrate that it has exhausted all
options to avoid seeking relief under chapter 9.
(3) Detail a specific plan for restoring the
soundness of entity's financial plans.
C. An itemization of creditors that may be impaired
or may seek damages as a result of the proposed plan.
D. Evidence of irreparable harm that may result
during the 30-day evaluation period, and the 15 days
allotted for a hearing.
7.Requires CDIAC, upon receipt of the information listed
in # 6) above, to evaluate the information presented
within five days, to notify the public entity of one of
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the following results:
A. Approval of the request.
B. CDIAC intends to proceed with a further
evaluation based on a finding that the local public
entity did not provide sufficient evidence.
8.States that if CDIAC determines that it will proceed
with a further evaluation, CDIAC shall publish its
evaluation within 30 business days.
9.Provides that if CDIAC does not respond to the request
within five days of receipt of the request, the request
shall be deemed approved.
10.Requires CDIAC staff to specifically evaluate the extent
to which the local public entity has done the following:
A. Demonstrated that it has exhausted other
remedies.
B. Demonstrated that it has taken sufficient steps
to reduce the negative consequences of the proposed
bankruptcy relief.
C. Has anticipated the transfer of service
responsibility to other governments or parties and
to what extend the entity has documented the
consequences for the transfer of municipal and
other government services.
D. Documented the likely effect a successful
petition will have on state and local finances,
including the impact on credit access and debt
service.
E. Has proposed a remedy that it is appropriate and
proportionate to the entity's fiscal problems.
11.Requires CDIAC, after it conducts and publishes its
evaluation, to conduct a hearing and publish a decision
within 15 days of, but not less than 10 days after the
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publication of the staff evaluation; and requires that
the hearing on the application shall be held in
convenient proximity of the entity filing the
application.
12.Specifies that CDIAC shall, in a recorded vote on the
date of the hearing, approve or deny the request of the
local public entity.
13.Requires CDIAC to adopt specific findings that address
the deficiencies of the application, if the application
is denied.
14.Requires that the hearing held by CDIAC be subject to
the provisions of the Bagley-Keene Open Meeting Act.
15.Requires, after CDIAC receives an application from a
local public entity, the executive director to record
costs incurred by CDIAC to make and publish the
evaluation and conduct the public hearing; and requires
the director to report the costs to CDIAC at the next
regularly scheduled CDIAC hearing.
16.Allows the executive director of CDIAC, upon denial of
the request, to assess a fee on the requesting entity to
cover some or all of the costs associated with making
the findings and conducting the hearing.
17.Requires that fee revenue be deposited in the CDIAC
Fund.
18.Allows CDIAC to propose regulations pursuant to this
bill.
19.Declares that in enacting this bill, the state assumes
no new or additional fiscal responsibilities for local
entities that may apply to CDIAC.
20.Specifies that the bill shall only apply to a local
public entity on or after the effective date of the
bill.
21.Provides that if a member of CDIAC is also employed as a
local government finance officer by an entity requesting
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approval, the Treasurer shall replace that member, for
purposes of the application of the local government that
also employs the member, with a person employed by a
city, county, or city and county, within the state,
experienced in the issuance and sale of municipal bonds
and nominated by associations affiliated with these
agencies, to preside over that application.
22.Defines "local public entity" to mean any city, county,
city and county, district public authority, public
agency, or other entity that is a "municipality" within
the meaning of federal bankruptcy law applicable to
local public entities.
23.Makes findings and declarations relating to municipal
bankruptcies.
FISCAL EFFECT : Appropriation: Yes Fiscal Com.: No
Local: No
SUPPORT : (Verified 7/1/09) (Per AB 155 Sen. Local Gov't
Cmte. Analysis)
California Labor Federation (9/9/09 verified by letter)
California Professional Firefighters
California State Treasurer Bill Lockyer
CDF Firefighters Local 2881
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 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.
California Teamsters Public Affairs Council
Consumer Federation of California
Engineers and Scientists of California
Glendale City Employees Association
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International Longshore & Warehouse Union
Kern County Fire Fighters Union, Inc.
Los Angeles 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
Organization of SMUD Employees
Peace Officers Research Association of California
Production Strategies, Inc.
Professional and Technical Engineers Local 21
Professional Engineers in California Government
Riverside Sheriffs' Association
San Bernardino Public Employees Association
San Diego Municipal Employee's Association
San Francisco Labor Council
San Luis Obispo County Employees Association
Santa Rosa City Employees Association
Service Employees International Union
State Building and Construction Trades Council of
California
UNITE HERE
United Food and Commercial Workers Union
Western States Council
OPPOSITION : (Verified 7/1/09) (Per AB 155 Sen. Local
Gov't Cmte analysis)
Association of California Health Care Districts
Association of California Water Agencies
California Contract Cities Association
California Society of Municipal Finance Officers
California State Association of Counties
California Special Districts Association
Counties of Butte, Imperial, Nevada, Madera, Orange,
Riverside, San Luis
Obispo, Yolo
Cities of Antioch, Adelanto, Apple Valley, Atascadero,
Arvin, Bellflower,
Belmont, Benicia, Berkeley, Beverly Hills, Blythe, Brea,
Burbank,
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Burlingame, California City, Calistoga,
Carmel-by-the-Sea,
Carson, Carlsbad, Chowchilla, Clayton, Cloverdale,
Clovis, Coalinga,
Commerce, Concord, Cotati, Covina, Cypress, Danville,
Diamond Bar,
Dixon, El Segundo, Encinitas, Exeter, Fairfield, Fontana,
Fountain Valley,
Fowler, Fremont, Fullerton, Glendora, Greenfield,
Guadalupe, Hanford,
Healdsburg, Hermosa Beach, Highland, Hollister, Hughson,
Huntington
Park, Huntington Beach, Irvine , Kingsburg, La Palma, La
Puente,
La Verne, Laguna Hills, Lake Forest, Lafayette, Lathrop,
Lawndale,
Lemoore, Lindsay, Livermore, Long Beach, Madera, Mammoth
Lakes,
Manhattan Beach, Manteca, Merced, Mendota, Mill Valley,
Modesto,
Moreno Valley, Murrieta, Napa, Newport Beach, Norco,
Norwalk,
Oakdale, Oakland, Ontario, Oroville, Palmdale, Palo Alto,
Paradise,
Patterson, Pinole, Placentia, Pleasanton, Pomona, Rancho
Cordova,
Rancho Cucamonga, Reedley, Ridgecrest, Rialto, Rio Vista,
Rohnert Park,
Rolling Hills Estates, Rosemead, Salinas, San Francisco,
Sanger,
San Luis Obispo, San Marcos, San Pablo, Santa Cruz,
Santa Maria,
Santa Rosa, Seaside, Sebastopol, Shafter , Signal Hill,
Stockton,
Tehachapi, Torrance, Tracy, Tulare , Tustin, Vacaville,
Villa Park, Visalia,
Walnut Creek, Wasco, West Hollywood, Westminster,
Windsor,
Woodlake, Yorba Linda, Yountville, and Yucaipa
Howard Jarvis Taxpayers Association
League of California Cities
League of California Cities Inland Empire Division
League of California Cities Orange County Division
Marin County Council of Mayors and Councilmembers
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Sacramento Board of Supervisors (9/9/09 verified by letter)
South Bay Cities Council of Governments.
ARGUMENTS IN SUPPORT : Proponents state, municipal
bankruptcy's broad and significant impact on residents
within the bankrupt entity's jurisdiction, on other local
government entities, and on the state necessitates state
oversight of local public entities' bankruptcy filings.
Because local and state finances in California are
inextricably linked, the state has a direct interest in the
fiscal health of its local governments. A municipal
bankruptcy can have statewide repercussions, including
higher borrowing costs for other local entities and the
state. The state also has a compelling interest in
ensuring the validity and enforceability of contracts
negotiated through the collective bargaining process, which
provides the foundation for positive and stable labor
relations. The review process authorized by AB 155 could
help local officials find alternative strategies to address
short-term fiscal challenges in ways that avoid the broad
and lasting spillover effects of municipal bankruptcy.
This bill follows a model used successfully in other states
to protect the interests of a broad coalition of
stakeholders who are impacted by municipal bankruptcies.
ARGUMENTS IN OPPOSITION : The County Board of Supervisor
is concerned with the state getting involved in local
fiscal matter and state that submitting the bankruptcy
decision to any state agency, board, or commission,
including California Debt Invest Advisory Commission, which
has no direct responsibility to the voters of the local
community. The Commission, which is prescribed to review
local agency petitions for permission to seek bankruptcy
protection under this bill is not responsible for the
day-to-day operations of local agencies; it has no
perception of community needs or priorities in order to
make responsible choices about spending scarce government
resources. The Commission does not have to balance
competing fiscal priorities at the local level and is not
charged with preserving the overall economic stability
within the local community.
ASSEMBLY FLOOR :
AYES: Ammiano, Beall, Block, Blumenfield, Brownley,
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Buchanan, Caballero, 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, Ruskin, Salas, Saldana, Skinner, Solorio,
Swanson, Torlakson, Torres, Torrico, Yamada, Bass
NOES: Adams, Anderson, Arambula, Tom Berryhill, Blakeslee,
Conway, Cook, DeVore, Duvall, Emmerson, Fletcher, Fuller,
Gaines, Garrick, Gilmore, Harkey, Jeffries, Knight,
Logue, Miller, Nestande, Niello, Nielsen, Silva, Smyth,
Audra Strickland, Tran, Villines
NO VOTE RECORDED: Bill Berryhill, Charles Calderon, Davis,
Hagman, Vacancy
DLW:do 9/9/09 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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