HomeMy WebLinkAbout11 LEGISLATIVE REPORTS 03-17-09Agenda Item 11
Reviewed:
AGENDA REPORT City Manager
Finance Director NIA
MEETING DATE: MARCH 17, 2009
TO: HONORABLE MAYOR AND MEMBERS OF CITY COUNCIL
FROM: WILLIAM A. HUSTON, CITY MANAGER
SUBJECT: LEGISLATIVE REPORT-AB 155
RECOMMENDATION:
That the City Council authorize the Mayor to send a letter in opposition to AB 155
(Mendoza)
DISCUSSION:
AB 155 would create a State Local Agency Bankruptcy Committee (consisting of the
State Treasurer, State Controller and Director of State Finance) which would have to
grant approval before a City could file for bankruptcy protection under federal law. The
author of the bill claims this process is needed in order to protect the State's credit
rating.
The facts are only two cities in California (Vallejo and Desert Hot Springs) have filed for
bankruptcy since adoption of federal bankruptcy laws. And the State's current low credit
rating was created by the State's self-imposed financial issues; not local government.
The underlying reason for AB 155 is public employee unions want to make it more
difficult for a city to require re-negotiation (or invalidation) of labor agreements through
bankruptcy proceedings. This emerged as a major point of dispute during the City of
Vallejo bankruptcy last year.
It has been pointed out that if the State is concerned about local agencies petitioning for
bankruptcy, the best thing the State can do is fix its own budget problems and do so
without shifting or taking local funds.
CALIFORNIA LEGISLATURE-2009-10 REGULAR SESSION
ASSEMBLY BILL No. 155
Introduced by Assembly Member Mendoza
(Principal coauthor: Assembly Member Torrico)
(Coauthors: Assembly Members Brownley, Coto, De Leon, Fuentes,
Furutani, Ma, Nava, John A. Perez, V. Manuel Perez, and
Yamada)
(Coauthor: Senator Wiggins)
January 26, 2009
An act to amend Section 53760 of the Government Code, relating to
local government.
LEGISLATIVE COUNSEL'S DIGEST
AB 155, as introduced, 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 Local Agency
Bankruptcy Committee that would consist of the Controller, the
Treasurer, and the Director of Finance, 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:
1 SECTION 1. Section 53760 of the Government Code is
2 amended to read:
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AB 155 - 2
1 53760. (a) Except as otherwise provided by statute, a local
2 public entity in this state may, with the approval of the Local
3 Agency Bankruptcy Committee, under the terms and conditions
4 that the committee may impose, file a petition and exercise powers
5 pursuant to applicable federal bankruptcy law.
6 (b) As used in this section, "local public entity" means any
7 county, city, district, public authority, public agency, or other
8 entity, without limitation, that is a "municipality," as defined in
9 paragraph (40) of Section 101 of Title 11 of the United States Code
10 (bankruptcy), or that qualifies as a debtor under any other federal
11 bankruptcy law applicable to local public entities.
12 (c) The Local Agency Bankruptcy Committee is comprised of
13 the Controller, the Director of Finance, and the Treasurer.
O
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Office of the City Council
March 18, 2009
The Honorable Tony Mendoza
Member of the Assembly, 56th District
State Capitol, Room 2188
Sacramento, CA 95814
Fax: 916-319-2156
RE: AB 155 IMendozal Municipal Bankruptcv. (As Introduced 1/26/09)
NOTICE OF OPPOSITION
Dear Assembly Member Mendoza:
TUSTIN
At its regularly scheduled meeting of Tuesday, March 17, 2009 the Tustin City Council voted to
oppose Assembly Bill 155 which would create a Local Agency Bankruptcy Committee to approve
municipal bankruptcy filings in California.
The City of Tustin strongly objects to this legislation for the following reasons:
Most cities produce on-time, balanced budgets - in good times and bad. Even as cities are
seeing dramatic declines in local property and sales taxes as a result of the current economic
crisis, we are making the difficult decisions necessary to produce a balanced budget, even when
that means cutting substantially into core services, furloughing or laying off workers, or some
combination of both.
Municipal bankruptcy is rarely used. The record shows that cities will use all means available to
avoid bankruptcy. Since 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 last
year the City of Vallejo. Municipal bankruptcy is not an attractive alternative for cities, nor is it
an easy process.
AB 155 is a questionable solution in search of a problem. According to the information sheet
your office prepared on this bill, you believe AB 155 is needed to protect a further weakening of
the state's credit that might potentially occur if a city were to declare bankruptcy. The City of
Tustin disagrees. The state today has one of the worst credit ratings in the nation -not the
result of a city action, but due to a lack of confidence among major bonding and financial
institutions.
If the state is concerned about agencies petitioning for bankruptcy, the most important
assistance it can provide is to fix its own budget problems quickly, and do so without borrowing,
shifting, or taking local revenues. Since 1986 the state budget has been late 22 times - in good
economic times and bad. Local agencies working to solve their own budget problems are
greatly affected by the uncertainty of whether a state budget will take, borrow or shift funds
from local sources.
Mayor Doug Davert • Mayor Pro Tem Jerry Amante • Jim Palmer • Deborah Gavello John Nielsen
300 Centennial Way, Tustin, CA 92780 • (714) 573-3010 • www.histinca.or~
BUILDING OUR FUTURE
HONORING OUR PAST
The City of Tustin appreciates the efforts put forward this year to pass a budget that did not rely
substantially on borrowing or shifting local funds. But we all know that the state faces
continuing uncertainty over whether the various pieces that comprise the state budget will hold
together sufficiently to temporarily address the ongoing state deficit. This uncertainty hurts
local agencies, as it does the state itself.
AB 155 will do nothing to address the factors affecting the state's credit rating. Rather, it will
insert state-elected officials into what is fundamentally a local decision-making process, and
substitute the judgment of those state officials for that of the local officials who are elected by a
community to manage their city's affairs.
For these reasons, the City of Tustin strongly opposes AB 155.
cc: Assembly Local Government Committee, Fax: 916-319-3959
Natasha Karl, Legislative Analyst, League of California Cities, Fax: 916-658-8240