Legislation that would make it harder for California municipalities to file for bankruptcy stalled in committee Wednesday.
The union-backed legislation would force local governments to undergo "neutral evaluation" and meet other criteria before being able to seek protection in federal bankruptcy law.
The Senate Governance and Finance Committee sent AB 506, sponsored by the California Professional Firefighters Association, to the Senate Rules Committee.
This is not the first bid by state lawmakers and unions to limit municipal bankruptcies; such bills were introduced in 2009 and 2010 but never reached the governor's desk.
Public employee unions, including the California Professional Firefighters, began pushing for the legislation after Vallejo successfully abrogated its labor contracts after its 2008 bankruptcy filing.
The Bay Area city has spent more than $9 million on lawyers' fees during the bankruptcy case — which is not over — and has no near-term plans to return to the bond market.
The Vallejo bankruptcy forced the city's unions to renegotiate contracts. Most creditors are likely get paid only 5 to 20 cents on the dollar while the main bondholders are set to take a 40% haircut, according to the proposed bankruptcy exit plan.
California is one of 15 states that give localities permission to file for Chapter 9, while more than half have some type of approval process.
