California Advances Bill to Curb Municipal and Agency Bankruptcies

ALAMEDA, Calif. — A bill designed to make it harder for California local governments and agencies to file for bankruptcy cleared a key committee Tuesday afternoon.

The Senate Local Government Committee sent an amended version of the bill to the floor Tuesday afternoon.

AB 155 originally would have required local agencies to obtain permission from the California Debt and Investment Advisory Commission before filing for municipal bankruptcy.

It was subsequently amended to give municipalities the right to override a negative CDIAC finding. This week’s amendments would allow local governments to bypass the commission and file for Chapter 9 bankruptcy if they first submit to a financial audit by the Bureau of State Audits.

The bill sat in the Senate’s inactive file for weeks before springing back to life in the end-of-session rush to pass bills before the Aug. 31 deadline.

The state audit option was added to the bill to address complaints that the CDIAC review could drag out the process of making a bankruptcy filing. Local governments and their lobbyists remain opposed.

A government facing the kind of fiscal distress that requires it to contemplate bankruptcy does not have time to complete a drawn-out review process, according to Dan Carrigg, lobbyist for the League of California Cities.

“When you’re in trouble you can at least get in front of a [bankruptcy] judge and get an automatic stay,” he said in testimony.

“We believe that if an agency’s not timely in achieving those protections, we could put local programs at risk,” said California State Association of Counties lobbyist Jean Hurst.

Sen. Mark DeSaulnier, D-Concord, said he introduced the new amendment because the state auditor can offer an impartial review of an agency’s finances, which could help management and labor head off problems.

“The most important thing is to get the numbers right as quickly as possible,” said DeSaulnier, who sits on the local government committee. “The sooner management and rank-and-file can agree on the numbers, the sooner you can reopen those contracts as necessary and bargain it out.”

The committee approved the bill on a party-line 3-1 vote, with all Democrats in favor.

The bill passed the Assembly in June 2009. In order to become law, it would still need to be approved by the full Senate, as well as the Assembly, because it was amended in the Senate

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