Counties remain opposed to harmful bankruptcy bill AB 155
AB 155, by Assembly Member Tony Mendoza, was approved by the Assembly on a 47-25 vote this week. Counties will recall that AB 155 would require a local agency to receive approval from the California Debt and Investment Advisory Commission (CDIAC) prior to seeking Chapter 9 bankruptcy protection. CSAC, as well as the Urban Counties Caucus, the Regional Council of Rural Counties, the League of California Cities, and the California Special Districts Association, are strongly opposed to this bill.
AB 155 was recently amended with new provisions that we encourage counties to review. In summary, the June 1 amendments provide for the following:
The local agency wishing to request approval to seek bankruptcy protection must submit the following items to the CDIAC:
· A resolution adopted in a public hearing that requests the authority to seek Chapter 9 bankruptcy protection and acknowledges that the state’s “fiscal and financial responsibilities are not changed” by the application or the CDIAC’s decision;
· A thorough analysis of the entity’s request to petition under Chapter 9, in which the local entity must demonstrate that it is or will be unable to pay its undisputed debts, demonstrate that it has exhausted all options to avoid seeking Chapter 9 relief, and provide a detailed plan for restoring the local entity to fiscal health.
The local agency may request an expedited review that, if approved, would be completed within 5 days.
CDIAC must complete its review and publish its evaluation within 30 business days, or under an expedited review, within 5 days.
CDIAC must specifically evaluate that the local agency has demonstrated that it has exhausted other remedies, demonstrated that it has taken “sufficient steps to reduce the negative consequences of its proposed bankruptcy relief,” anticipated the transfer of service responsibility to other governments or parties and to what extent the entity has documented the consequences for the transfer of services, the likely effect a successful petition will have on state and local finances, including the impact on credit access and debt service, and has proposed a remedy that is appropriate and proportionate to the entity’s fiscal problems.
CDIAC must conduct a public hearing within 15 days of, but not less than 10 days after, the publication of the staff evaluation in a location that is close to the local agency applicant.
If CDIAC does not approve the application, the local agency may reapply, but must adopt another resolution and submit documentation to “address the deficiencies” identified by the CDIAC.
In CDIAC approves a request, they may place conditions to limit the nature and extent of relief, including:
- Limiting changes to a contract;
- Prohibit the abrogation of contracts;
- Limit the amount of relief to ensure the protection of debt service payments.
Finally, CDIAC will keep track of the costs associated with this review and the director will report those costs to the CDIAC at its regularly scheduled meeting. If CDIAC denies a local agency’s request, CDIAC may assess them a fee to cover some or all of the costs of the review.
In CSAC’s view, these amendments provide greater opportunity for fiscal harm of a local agency and, not only do not improve the bill, but make it worse. Please consider reviewing this important legislation and weighing in.
It is likely that AB 155 will be set for hearing in the next few weeks in the Senate Local Government Committee.
PRINTER-FRIENDLY VERSION
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