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September 13, 2011 > Senate committee approves municipal bankruptcy bill

Senate committee approves municipal bankruptcy bill

Submitted By Jeff Barbosa

The state Senate Governance and Finance Committee approved a municipal bankruptcy bill by Assemblyman Bob Wieckowski (D-Fremont) on September 7, 2011, that establishes a neutral evaluation process to help local governments avert financial disaster and restructure debts. The bill now goes to the Senate floor before returning to the Assembly for a final vote.

Wieckowski worked diligently with the opposition to craft a careful compromise. As a result, AB 506, no longer requires municipalities to acquire a certification from a neutral evaluator before being allowed to file for Chapter 9 bankruptcy. Instead, after a series of negotiations with all stakeholders, the bill requires local governments to participate in a neutral evaluation process by an independent third party for 60 days. After that period, the local government could opt to file for bankruptcy.

The neutral evaluation process could be avoided altogether if a majority of the local government's elected body votes in a publicly-noticed meeting to file a declaration of financial emergency. The bill's previous opponents removed their opposition.

"My goal with this bill is to save taxpayers' money by helping cities and other local governments in financial distress avoid protracted and expensive bankruptcies," Wieckowski said. "The neutral evaluation process in AB 506 is designed to make the debt restructuring process, in or outside of a Chapter 9 bankruptcy, as cost effective and efficient as possible for all participants. It will help decrease counter-productive posturing and reduce motions to dismiss if a case does reach bankruptcy."

The vast majority of states prohibit local governments from filing for bankruptcy and another 13 states place significant restrictions well beyond the requirements in this bill.

"AB 506 is a reasonable step to bring people together to work toward consensus and to reach an agreement on debt restructuring without going to bankruptcy court," Wieckowski said.

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