ALAMEDA, Calif. — A California Senate committee has approved a watered-down version of a bill designed to make it harder for cities or other local agencies to file for Chapter 9 municipal bankruptcy.
AB 155 was introduced in 2009. In its original form, it required municipalities to secure the approval of the California Debt and Investment Advisory Commission before seeking protection from creditors under Chapter 9 of the U.S. Bankruptcy Code.
The bill moved to the Senate floor Thursday from the Senate Appropriations Committee.
Gov. Arnold Schwarzenegger’s administration opposes the measure because it would “usurp local governments’ authority to manage their finances,” according to spokesman H.D. Palmer
“AB 155 goes a long way in reassuring the residents of California that bankruptcy should only be used after all options are exhausted,” its sponsor, Assemblyman Tony Mendoza, D-Norwalk, said in a statement afterwards.
Committee amendments appear to have softened the legislation’s effect on local governments and agencies.
According to the staff report prepared for the committee, the agencies would still have to seek approval from CDIAC.
But the amended version of the bill also gives local governments the authority to override any denial by CDIAC, and also bars the commission from conditioning any approval request, requiring it to vote yes or no, according to the staff report.
Passage of such a bill would create a new policy role for CDIAC, which was created to advise state and local agencies on debt and investment management and compile debt issuance information.
The nine-member commission includes the treasurer, the state controller, the governor, four lawmakers, and two local officials appointed by the treasurer.
While CDIAC’s staff compiles and publishes debt issuance data, and organizes frequent workshops for public officials, the commission itself has not been very active. It last met in June 2008.
Local governments remain steadfastly opposed to AB 155, despite the recent amendments.
“In reality, CDIAC still holds local governments hostage,” according to a letter to the committee from the League of California Cities and five other lobbying groups representing local entities.
The bill is a solution in search of a problem, the letter said, adding that Vallejo’s 2008 bankruptcy filing, which has yet to close, has not spawned a wave of copycats.
State Treasurer Bill Lockyer, who chairs CDIAC, supports the bill, said spokesman Tom Dresslar.
“We support the bill because the state has a compelling interest in making sure bankruptcy is a last resort when everything else becomes unfeasible,” Dresslar said.
The headline risk and bad publicity surrounding a bankruptcy could have a material impact on the state’s borrowing costs, and those of other municipalities, he added.
The bill passed the committee on a 6-to-4 vote, with all three Republicans and Sen. Lois Wolk, D-Davis, voting no.
The Assembly approved the bill during 2009, but would have to vote again because of the Senate amendments.
Mendoza said California is one of only 12 states without any authority over municipalities that wish to file for bankruptcy.
