After much watering down, a California bill to make it harder for local governments to seek bankruptcy protection cleared committee on Wednesday.
The bill was changed to include a different evaluation process that would preserve municipalities’ authority to declare Chapter 9 bankruptcy without a state review. Those changes evaporated opposition from local government lobbying groups.
Municipalities would not have to acquire a certification from an arbitrator before being allowed to file for Chapter 9 bankruptcy protection, according to the bill.
Under the new language, before declaring bankruptcy, a municipality’s elected body must vote during a public hearing to declare a fiscal emergency, or take part in an evaluation process by an independent third party for 60 days before it may file.
The revised AB 506 was sent to the Senate floor. Because of the changes, it must also be approved by the Assembly before the Legislature’s scheduled Friday evening adjournment.
The California Professional Firefighters Association sponsored AB 506, initially pitting themselves against local government lobbyists because of fears the measure would handcuff local governments.
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 $10 million on lawyers’ fees during the bankruptcy case — which is not over — and has no near-term plans to return to the bond market.
Vallejo’s bankruptcy forced its unions to renegotiate contracts.
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.
“My goal with this bill is to save taxpayers’ money by helping cities and other local governments in financial distress avoid protracted and expensive bankruptcies,” Assemblyman Bob Wieckowski, D-Fremont, the sponsor, said in a statement.
