Perhaps that’s because bankruptcy isn’t a proud affair. No one has proudly beaten the drum and marshaled the troops as they marched into the federal bankruptcy court.
Despite various reforms over the last 60 years, California has consistently protected its municipalities’ right to seek the last, desperate protections of Chapter 9 bankruptcy. Now, a bill that’s being strong-armed through the legislative process threatens six decades of precedent, and would establish virtually “insurmountable” obstacles to municipal bankruptcy.
When the Senate Appropriations Committee took-up the bill, their staff reviewed the bill. The subsequent analysis should have killed the bill once and for all. They wrote, “This bill appears to violate the Legislature’s sole constitutional authority…”
But today, the bill is expected to come to vote in the Senate.
AB 506, authored by Assemblyman Bob Wieckowski and California Professional Firefighters, is the third attempt in the last two years to reform and undermine local authority by restricting the protections of federal law. With the pretense of “neutrality,” the bill will impose a statewide, one-size-fits-all process on local financial affairs.
Included in the litany of new processes would be a state-sanctioned and administered arbitration process.
Opponents to the bill, including the California League of Cities, the California State Association of Counties, the California Special Districts Association, and others, say that the ambiguity in the new process is dangerous.
“With no timelines and multiple opportunities for delay, obstruction and interference,” the coalition of opposition wrote in a recent bulletin, “the process only serves to impede a local agency from being able to address their fiscal situation.”
In other words, there’s a defined beginning, but no pre-determined end. In fact, the bill’s analysis says that the conclusion of the mediation requires a good faith effort and “Reaches an out of court agreement with all interested parties; or Is unable to reach an out of court agreement with all interested parties and the neutral evaluator certifies that the parties participated in good faith.”
The bill’s opposition actually offered recommendations to make the system more palatable, and their proposal earned the support of Senator Lois Wolk. That system:
- “Would have been applied only in extremely rare instances of a future municipal bankruptcy;
- Was designed to be a last-chance opportunity for parties to work out their differences in a pre-bankruptcy minimum 60-day mandatory confidential mediation process;
- Would have been facilitated by a truly neutral person without state or other political intrusion and selected in a neutral fashion; and
- Provided an option for a local agency to seek protections immediately if an emergency fiscal situation exists.”
However, that proposal was summarily cast aside in the Senate, and the badly written bill goes on for a vote.
Now, the coalition of local government associations is seeking letters of opposition from members and stakeholders. Specifically, one suggested letter objects that:
- AB 506 would put obstacles in front of a municipality rather than offers assistance.
- AB 506 would prevent an insolvent local agency from the benefit of immediate protection.
- AB 506’s “neutral evaluator” is more like an arbitrator.