Three years after California legislation took effect extending the window for victims of child sexual abuse to file claims, local governments and school districts are still working with financial advisors to figure out how to pay billions of dollars in claims without falling into service-level insolvency.
"The financing tools are not well known, because they are infrequently used and they are solving a problem with which their financing teams have little experience," Robert Berry, executive director of the California Debt and Investment Advisory Commission, said this week at CDIAC's pre-conference held ahead of The Bond Buyer's California Public Finance conference in San Diego.
CDIAC focused its entire four-hour event on the issue, which Berry said was in recognition of the "magnitude of the problem and the fact public finance will be a large part of the solution."
Cities, counties and school districts across the state are
"It's a matter of where will the storm strike and which agencies are prepared to handle it," Berry said.
Berry noted that some local governments and school districts have already announced settlements, including Los Angeles County, Santa Monica and the Los Angeles Unified School district. For Los Angeles County alone, the claims — with more in the pipeline —
Adding to the challenge,
"It was one thing to revive the statute for claims we didn't know we were exposed to, but today anything could be happening out there and we will forever have exposure," said Mike Fine, chief executive officer of the Fiscal Crisis Management and Assistance Team, which is charged with helping California schools identify, prevent and resolve financial and operational challenges.
"The only way to address AB 452 is prevention," Fine said.
All of the speakers were careful to say that victims of sexual abuse deserve restitution, but they want to help find financial solutions so local governments and school districts can continue to provide the services they are meant to.
"The other thing is these crimes against kids are simply unacceptable to us as a society. Everyone speaking would say true victims should be compensated," Fine said. "For true claims, which is what we have seen for the most part, we absolutely believe victims should be compensated."
Los Angeles County, which announced in October it had reached a second settlement adding
Under AB 218, governments and school districts found liable are required to pay claims within 30 days after a settlement is reached, which means tapping short-term debt like tax and revenue anticipation notes or direct placement loans.
Absent a finding of unreasonable hardship, which may permit a limited installment plan, monetary judgments against local governments in California generally are payable in full upon the conclusion of litigation, Donald Field, an Orrick, Herrington & Sutcliffe partner, wrote
Such judgment obligation bonds — a financing structure in which the government is "refunding" a legal claim by issuing taxable debt — have drawn heightened interest since AB 218 passed, Field said. Since 1992, roughly 35 judgment obligation bonds have been issued, he said, adding it hasn't been a widely-used structure. Orrick has been bond counsel on roughly half of the judgment bonds issued in the state, he said.
"The passage of AB 218 has resulted in a flood of litigation against local governments across California and many of them are turning to JOBs to lessen the resulting financial impacts on programs and services," Field said.
Cities and districts must go to voters to issue regular general obligation bonds backed by the full faith and credit of the government under the California constitution, Field said. That's why JOBs came about to give governments an option for dealing with large court claims. Each judgment obligation bond thus far has required the issuer to file a validation case in court, he said.
"One of the 25 largest school districts had a jury judgment of $135 million for two of six victims – all for the same teacher," Fine said. "It's not just teachers, we have bus drivers, walk-on coaches."
Another school district agreed to a post-award settlement of $45 million to be paid in installments over 10 years, in exchange for not having to pay a lump sum, Fine said. State law allows a payment plan if it's agreed to in negotiations, so agencies don't have to pay these large settlements with cash-on-hand in 30 days, Fine said.
But generally to get an extension through the court requires the local government or school district to say they are experiencing fiscal distress, which can create bond rating problems, Field said.
Fine reeled off several examples that involved school districts drawing down reserves and shrinking services in order to pay the claims; and one school district that had to use the proceeds from property it sold to cover claims.
Santa Monica has been very upfront about the liabilities it is facing related to child sexual abuse claims allegedly perpetuated over decades by Eric Uller a former Santa Monica police dispatcher and Police Activities League Volunteer who killed himself in 2018 after being hit with criminal charges.
The Santa Monica City Council on Sept. 9 approved a resolution declaring fiscal distress, citing decreased revenues and increased liabilities.
Both Moody's Ratings and Fitch Ratings dropped the city's rating
"Moody's hasn't taken any credit actions related to AB218," said Helen Cregger, a Moody's Ratings vice president-senior credit officer, qualifying that it placed Santa Monica's ratings on negative outlook based on the city's fiscal constraints.
"We haven't taken any rating action, but we will continue to track it because we think it will continue to be a risk," Cregger said.
Santa Monica has reached a $228 million settlement agreement on claims for Uller's alleged crimes, but it also faces reduced revenues because tourism, a key component of the city economy, hasn't recovered to pre-pandemic levels.
The city used interfund borrowing and tapped reserves to cover its liability.
Cash reserves have fallen from a high of $435.8 million in fiscal year 2017-2018 to $158 million in fiscal year 2025-26 and only $98 million of that is unobligated,
