HomeMy WebLinkAboutAgenda Report - May 5, 2010 B-02 SMCITY OF LODI
COUNCIL COMMUNICATION
AGENDA TITLE:
MEETING DATE:
PREPARED BY:
RECOMMENDEDACTION:
AGENDA ITEM e•-2
Authorize the Mayor, on Behalf of the City Council, to Send a Letter of
Opposition to Assembly Bill 155 (Mendoza) Local Government: Bankruptcy
Proceedings
May 5,2010
Blair King, City Manager
BACKGROUND INFORMATION:
Authorize the Mayor, on behalf of the City Council, to send a letter
of opposition to Assembly Bill 155 (Mendoza) Local Government:
Bankruptcy Proceedings.
The City was asked by the League of California Cities, and League
Representative Council Member Mounce, to oppose AB 155
(Mendoza) and send a letter of opposition regarding the same to
specific members of the Legislature.
Under existing law, any taxing agency or instrumentalityof the State may file a petition and prosecute to
completion bankruptcy proceedings permitted under the laws of the United States. This bill would provide
that a local public entity may only file under federal bankruptcy law with the approval of the California
Debt and InvestmentAdvisory Commission, and sets forth specific conditions and processesfor the
same.
A copy of the proposed bill and a draft letter of opposition, are attached for your consideration.
FISCAL IMPACT: Not Applicable.
FUNDING AVAILABLE: Not Applicable.
APPROVED:
Blair King, City Manager
,, 0.,,..._:.
Blair King `�--�
City Manager
CITY COUNCIL
PHIL KATZAKIAN, Mayor
SUSAN HITCHCOCK.
Mayor Pro Tempore
BOB JOHNSON
JOANNE MOUNCE
LARRY HANSEN
May 5,2010
CITY OF LODT
CITY HALL, 221 WEST PINE STREET
P.O. BOX 3006
LODI, CALIFORNIA 95241-1910
(209) 333-6702 / FAX (209) 333-6807
www.lodi.gov citvclerk5.lodi.aov
The Honorable Tony Mendoza
Member of the Assembly
State Capitol, Room 2188
Sacramento, California 95814
BLAIR KING, City Manager
RANDI JOHL, City Clerk
D. STEPHEN SCHWABAUER
City Attorney
SUBJECT: Notice of Opposition to AB 155 (Mendoza) Municipal Bankruptcy
—Inserts Politics Into the Bankruptcy Process
Dear Assembly Member Mendoza,
The City of Lodi regrets to inform you that the City strongly vNI►JZ,V a' ly attempt to remove
our ability to make our own financial decisions. That is exactly why we oppose AB 155—
the bill attempts to prevent any local government from filina for bankruptcy under Chapter
9 of the federal bankruptcy code without first receivina the permission of the State of
California.
This On TOD of the State Budget? The State, this past year, adopted a budget that
borrowed $2 billion in property taxes from local governments, confiscated more than $2
billion in local redevelopment revenues, and included a variety of delays, cost shifts, and
program cuts to locals. Like the state, this economic recession has had a profound
impact on local governments' revenues. The very local agencies that may need to seek
the protections of federal bankruptcy court are likely ones that the state has helped put in
that circumstance.
Inserts Politics Into a Financial Decision. AB 155 inserts politics into the bankruptcy
process. The bill gives a state appointed commission the authority to deny, approve, or
set conditions on a city's application to proceed into bankruptcy. This is a process that is
currently conducted by neutral and expert bankruptcy judges who are not subject to
political pressure. AB 155 substitutes a deliberative process for what will become a
political one.
State Liability Question Sill Unanswered. The State cannot afford to be liable to a local
agency's creditors in the event CDIAC denies an entity's petition. Who will provide the
services that a city will no longer be able to provide if CDIAC denies or imposes
erroneous conditions on a city's legitimate petition to file for bankruptcy? What will
happen to a city that cannot restructure its debt under Chapter 9? This bill puts all local
services dangerously at risk by denying or restricting a local aaencv's ability to restructure
debt through the bankruptcy process.
Municipal Bankruptcy is Rarely Used. The record shows that cities will use any means
necessary to avoid bankruptcy. Since the adoption of Chapter 9 of the state Bankruptcy
Code in 1949 60 years ago—only two cities have petitioned for its use: the City of
Desert Hot Springs in 1994, and in 2008 the City of Vallejo. Bankruptcy is not an
attractive alternative for local communities, nor is it an easy process. In fact, it is an
option of last resort.
For these reasons the City of Lodi is opposed to your AB 155.
Sincerely,
Phil Katzakian
Mayor
C: Brian Weinberger, Consultant, Senate Local Government Committee
Michael Prosio, Secretary & Deputy Chief of Staff, Governor's Office
Natasha Karl, Legislative Representative, League of California Cities
AB 155 Assembly Bill - AMENDED Page 1 of 5
BILL NUMBER: AB 155 AMENDED
BILL TEXT
AMENDED IN SENATE JULY 1, 2009
AMENDED IN ASSEMBLY JUNE 1, 2009
AMENDED IN ASSEMBLY MARCH 27, 2009
INTRODUCED BY Assembly Member Mendoza
(Principal coauthor: Assembly Member Torrico)
(Coauthors: Assembly Members Brownley, Coto, De Leon, Fuentes,
Furutani, Krekorian, Lieu, Ma, Nava, John A. Perez, V. Manuel Perez,
Price, and Yamada)
(Coauthors: Senators DeSaulnier, Liu, and Wiggins)
JANUARY 26, 2009
An act to amend Section 53760 of, and to add Sections 8860, 8861,
8862, 8863, as,d 40G4 8864, and 8865 to,
the Government Code, relating to local government.
LEGISLATIVE COUNSEL'S DIGEST
AB 155, as amended, Mendoza. Local government: bankruptcy
proceedings.
Under existing law, any taxing agency or instrumentality of the
state may file a petition and prosecute to completion bankruptcy
proceedings permitted under the laws of the United States.
This bill would provide that a local public entity may only file
under federal bankruptcy law with the approval of the California Debt
and Investment Advisory Commission, as specified.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State -mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. The Legislature hereby finds and declares all of the
following:
(a) The California Constitution and current statutory law provide
for a continuity and interdependence between state and local
government entities. Seeking financial relief through the provisions
of Chapter 9 (commencing with Section 901 of Title 11) of the United
States Code imposes costs on a municipality, potentially exceeding $1
million. It can reduce service levels to the taxpayers and residents
of a municipality. In some circumstances, it can have major short -
and long-term fiscal consequences to the municipality, the
surrounding local public entities, and the state. In 2009, bond
counsel stated that "filing for bankruptcy protection under Chapter 9
should be considered a last resort, to be effected only after every
effort has been made to avoid it."
(b) The Legislature has an interest in monitoring the conditions
under which local entities seek Chapter 9 protection. The relief
provided through the federal courts can affect state and municipal
government service levels, debt, and contracts. The Legislature also
has a strong interest in ensuring adequate disclosure of the
conditions under which a municipality may seek Chapter 9 protection.
(c) To the extent financial relief granted through Chapter 9 can
affect debt service payments, the state's investors and bondholders
httn://www.leginfo.ca.gov/uub/09-10/billlasm/ab 0151-0200/ab 155 bill 20090701 am... 05/04/2010
AB 155 Assembly Bill - AMENDED Page 2 of 5
have a direct interest in the Bankruptcy Court's decisions.
(d) The state has established a statewide system of public
employee collective bargaining for state and local government
employers and employees intended to protect the state's interest in
promoting peaceful and harmonious labor relations and preventing work
stoppages. The validity and enforceability of contracts arrived at
through collective bargaining are essential to maintaining labor
peace and the uninterrupted delivery of vital public services, and
these agreements may be subject to review and amendment or rescission
in the event of a Chapter 9 bankruptcy proceeding.
(e) The state has established and administers statewide pension
systems that provide retirement and health benefits to state and
local agency employees, many of whose benefits rely on contracts
negotiated between local agencies and the California Public Employees'
Retirement System, and that may be subject to review and amendment
or rescission in the event of a Chapter 9 bankruptcy proceeding.
(f) California is one of only 12 states that grants blanket
authority for its municipalities to petition for bankruptcy and
offers no opportunity for its municipalities to receive state -level,
prebankruptcy guidance, oversight, or assistance for those
jurisdictions that are truly insolvent and face no other alternative
to bankruptcy.
(9) State intervention in local affairs should only occur in
exceptional circumstances and not without a compelling interest of
statewide concern.
(h) Given the connection between state allocations and local
budgets, the state has a role in mitigating possible local
bankruptcy.
(i) It is the duty of all state and local elected officials to
ensure that governments provide essential services to the communities
they are elected to serve.
(j) California's taxpayers who rely on public safety, senior,
park, and library services, as well as those who own and operate
businesses in our communities deserve every effort that state and
local government can make to avoid the long-term devastation of
bankruptcy.
(k) The California Debt and Investment Advisory Commission is the
appropriate body to provide the expert oversight and guidance sought
by local public agencies who find themselves in a fiscal crisis,
given its current statutory duties to collect municipal finance data,
conduct research, administer educational seminars, and provide
information and technical assistance on behalf of local public
agencies and their finance professionals, and given the commission's
diverse membership that includes state and local government financial
experts.
SEC. 2. Section 8860 is added to the Government Code, to read:
8860. (a) The commission shall, upon request of a local public
entity, advise and, if deemed appropriate by the commission, grant
approval to the entity to exercise its rights pursuant to Section
53760, which may include conditions prescribed by the commission.
(b) Upon request under subdivision (a), the local public entity
shall submit all of the following to the commission:
(1) A resolution or ordinance, adopted by that governing body at a
public hearing held pursuant to the Ralph M. Brown Act (Chapter 9
(commencingwith Section 54950) of Part 1 of Division 2 of Title 5),
that does both of the following:
(A) Requests authority pursuant to Section 53760 to petition the
federal bankruptcy court for financial relief under the provisions of
Chapter 9 (commencingwith Section 901 of Chapter 11) of the United
States Code.
httn://www.lettinfo.ca.sovfuub/09-10/bill/asm/ab 0151-0200/ab 155 bi11 20090701 am ... 05/04/2010
AB 155 Assembly Bill - AMENDED Page 3 of 5
(B) Acknowledges that the state's fiscal and financial
responsibilities are not changed by the application or the commission'
s decision pursuant to Section 6861.
(2) A thorough analysis of the entity's request to petition under
Chapter 9 (commencing with Section 901 of Title 11) of the United
States Code. In addition to any other information it may provide, the
entity shall do all of the following:
(A) Demonstrate that it is or will be unable to pay its undisputed
debts.
(B) Demonstrate that it has exhausted all options to avoid seeking
relief under Chapter 9.
(C) Detail a specific plan for restoring the soundness of the
entity's financial plans.
(3) An itemization of creditors that may be impaired or may seek
damages as a result of the proposed plan.
(4) Evidence of irreparable harm that may result during the 30 -day
evaluation period, pursuant to subdivision (d), and the 15 days
allotted for a hearing, pursuant to subdivision (e),
.r, asLam+-- i++u i N.
th_ if the entit1
need—f., '.. 1 52 w., rt ltet; ... f_..... .
.,h.11 =4.1etect
W 611111 yJ
J„,„-.
(d)
(c) (1) Upon receipt of the
information required by subdivision (b), the commission shall
evaluate the information presented and within 5 days, notify the
local public entity of one of the following results:
(A) Approval of the request.
(B) The commission intends to proceed with a further evaluation
based on a finding that the local public entity did not provide
sufficient evidence pursuant to paragraph (4) of subdivision (b).
(2) If the commission determines that
it will proceed with a further evaluation, pursuant to subparagraph
(8) of paragraph (1), the commission shall publish its
evaluation within 30 business -deep _ = f
experkiteil , C
days. If the commission
does not respond to the request within five days of receipt of the
request, the request shall be deemed approved.
id) After noticing the local public
agency of the commission's intent to further evaluate the request,
the commission staff shall specifically evaluate the extent to
which the local public entity has done the following:
(1) Demonstrated that it has exhausted other remedies.
(2) Demonstrated that it has taken sufficient steps to reduce the
negative consequences of its proposed bankruptcy relief.
(3) Has 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 municipal and other
government services.
(4) Documented the likely effect a successful petition will have
on state and local finances, including the impact on credit access
and debt service.
(5) Has proposed a remedy that is appropriate and proportionate to
the entity's fiscal problems.
(e) The After the commission conducts the
evaluation, pursuant to paragraph (2) of subdivision (c) and
http: //www.leginfo. ca.gov/pub/09-10/bili/asm/ab_ 0151-0200/ab 15 5_bill 20090701 _am ... 05/04/2010
AB 155 Assembly Bill - AMENDED Page 4 of 5
publishes its evaluation, the commission shall conduct a
hearing and publish a decision within 15 days of, but not less than
10 days after, the publication of the staff evaluation conducted
pursuant to subdivision (d). The hearing shall be conducted according
to the provisions of Section 8861. The commission hearing on the
application shall be held in convenient proximity of the entity
filing the application.
(f) A governing board of a local public entity may reapply if its
request was denied pursuant to Section 8861. In making the
reapplication, the local public entity shall adopt another resolution
and submit documentation to address the deficiencies identified by
the commission pursuant to Section 8861.
(g) A county that has requested approval to file under subdivision
(a) may require local agencies with funds invested in the county
treasury to provide a five-day notice of withdrawal before the county
is required to comply with a request for withdrawal of funds by that
local agency.
{g}
(h) As used in this chapter, "local public entity"
means any city, county, city and county, district public authority,
public agency, or other entity that is a "municipality" within the
meaning of paragraph (40) of Section 101 of Title 11 of the United
States Code, or that qualifies as a debtor under any federal
bankruptcy law applicable to local public entities.
SEC. 3. Section 8861 is added to the Government Code, to read:
8861. (a) The commission shall hold a public hearing to consider
a request made pursuant to Section 8860. The hearing shall provide
sufficient time for public testimony.
(b) The commission shall, in a recorded vote on the date of
the hearing , approve or deny the request.
(c) If the commission approves a request, it may order the entity,
as a condition of approving the request, to limit the nature and
extent of relief provided through Chapter 9 bankruptcy proceedings,
including all of the following:
(1) The commission may limit the changes to a contract.
(2) The commission may prohibit the abrogation of contracts.
(3) The commission may limit the amount of relief to ensure the
protection of debt service payments.
(d) If the commission disapproves a request, the commission shall
adopt specific findings that address the deficiencies of the
application.
(e) The hearing shall be subject to the provisions of the
Bagley -Keene Open Meeting Act (Article 9 (commencing with Section
11120) of Chapter 1 of Part 1 of Division 3 of Title 2). At the same
time that the notice and agenda for the hearing is posted to comply
with the requirements of the Bagley -Keene Open Meeting Act, then the
commission shall do all of the following:
(1) Post the notice in a location in the entity that is freely
accessible to members of the public.
(2) Deliver the notice personally, by United States mail, or by
facsimile transmission, to each local newspaper of general
circulation whose circulation area reasonably includes the local
public entity.
(3) Deliver the notice by United States mail, or by facsimile
transmission, to each radio or television station that has requested
notice in writing.
(4) Request publication of the notice in the daily file of each
house of the Legislature at least 24 hours prior to the date of the
meeting, if the Legislature is in session.
SEC. 4. Section 8862 is added to the Government Code, to read:
htto://www.leginfo.ca.gov/pub/09-10/bill/asm/ab 0151-0200/ab I55 bi11W20090701_am... 05/04/2010
AB 155 Assembly Bill - AMENDED Page 5 of 5
8862. (a) After the commission receives a request pursuant to
Section 8860, the executive director shall record costs incurred by
the commission to make and publish the evaluation pursuant to Section
8860 and conduct the hearing required under Section 8861. The
director shall report those costs to the commission at the next
regularly scheduled commission hearing.
(b) Upon denial of the request, the executive director or
commission may assess the requesting entity a fee to cover some or
all the costs associated with making the findings and conducting the
hearing. Fee revenue shall be deposited in the California Debt and
Investment Advisory Commission Fund.
(c) The commission may propose regulations to govern the request
and review process required under Sections 8860 and 8861.
SEC. 5. Section 8863 is added to the Government Code, to read:
8863. In enacting Sections 8860, 8861, 8862, and the changes in
Section 53760, the state assumes no new or additional fiscal
responsibilities for local entities that may apply to the commission
for review pursuant to this chapter.
SEC. 6. Section 8864 is added to the Government Code, to read:
8864. This chapter shall only apply to a local public entity on
or after the effective date of this chapter.
SEC. 7. Section 8865 is added to the
Government Code , to read:
6865. If a member of the California Debt and Investment Advisory
Commission is also employed as a local government finance officer by
an entity requesting approval pursuant to Section 6860, the Treasurer
shall replace that member, for purposes of the application of the
local government that also employs the member, with a person employed
by a city, county, or city and county, within the state, experienced
in the issuance and sale of municipal bonds and nominated by
associations affiliated with these agencies, to preside over that
application.
41727. 7. SEC. 8. Section 53760 of the
Government Code is amended to read:
53760. (a) Except as otherwise provided by statute, a local
public entity in this state may, with the approval of the California
Debt and Investment Advisory Commission, under the terms and
conditions that the commission may impose pursuant to Section 8861,
file a petition and exercise powers pursuant to applicable federal
bankruptcy law.
(h) As used in this section, "local public entity" means any
county, city, district, public authority, public agency, or other
entity, without limitation, that is a "municipality," as defined in
paragraph (40) of Section 101 of Title 11 of the United States Code
(bankruptcy), or that qualifies as a debtor under any other federal
bankruptcy law applicable to local public entities.
http://www.leginfo.ca.gov/pub/09-10/billlasm/ab_0151-0200/ab 155_bill_20090701—am... 05/04/2010