SAN FRANCISCO — California lawmakers are considering a new bill that would change the state’s four-month old municipal bankruptcy law, reigniting a battle between public employee unions and local governments.
The proposed legislation, Assembly Bill 1692, could have a two-fold impact: it would extend the powers of mediators in the pre-bankruptcy process, and it would expand the negotiations to “successor agencies” of the recently eliminated redevelopment agencies to help them deal with debt.
“AB 1692 is a clean-up bill for my municipal bankruptcy bill from last year, AB 506,” Assembly member Bob Wiekowski, D-Fremont, said during a hearing last week.
“As the process is being implemented in the cities of Stockton and Mammoth Lakes, it has become clear that areas of clarification are needed,” Wiekowski said.
AB 506 requires, in most cases, that local governments participate in a mediation process with creditors before being allowed to make a Chapter 9 bankruptcy filing.
The new legislation would give mediators the power, among others, to stop the clock during the 60-day talks if the “conduct in presenting information” by anyone involved hurts the negotiations, and give the mediator the ability to request and control an independent investigation.
Union officials said during the hearing that the bill is needed to help clarify the current law because several agencies are considering entering the AB 506 process.
So far, only Stockton and Mammoth Lakes have done so. During the hearing, Stockton officials called the bill “a solution to a problem that is yet to occur” and said that it would drag out the process.
The bill passed out of the Assembly Local Government Committee last week on a party-line vote with majority Democrats in favor, and moves to the Appropriations Committee.
Local government lobbying groups, say Wiekowski’s new legislation would give the mediator too much power and allow parties involved in the talks to delay negotiations without the consent of the municipality.
The League of California Cities wrote in a statement opposing the legislation: “Last year, the league was vehemently opposed to similar provisions in AB 506 because they created obstacles to municipal bankruptcy and resulted in a process stacked against local agencies.”
AB 506, which became law on Jan. 1, is designed to give financially stressed local governments a chance to stay out of bankruptcy by structuring a negotiation process between municipalities and interested parties.
Stockton, a city of 300,000 an hour and a half drive east of San Francisco, is trying to avoid becoming the largest city in the country to file for bankruptcy. It is in the middle of confidential talks with creditors under the AB 506 law.
AB 1692 would also permit successor agencies to California’s recently dissolved redevelopment agencies to file for Chapter 9, after the same mediation process that applies to other local governments.
According to a legislative analysis of the bill, Wiekowski pointed to growing concerns “over how successor agencies will manage the financial obligations from the former RDAs, such as making bond payments, being forced to default on these payments, or handling the modifications of contracts.”
The bill would help the agencies deal with the “potential for staggering debt load left over” by authorizing a successor agency to file for bankruptcy under federal bankruptcy law, the analysis said.
Wiekowski was unable to comment by press time.
Earlier this year, legislation eliminated redevelopment agencies and shifted responsibility for the agencies to successor agencies, in most cases overseen by the city or county that sponsored the original redevelopment agency.
