HomeMy WebLinkAbout15 LEGISLATIVE REPORTS 09-15-09AGENDA REPORT
MEETING DATE: SEPTEMBER 15, 2009
Agenda Item
Reviewed:
City Manager
Finance Director
TO: HONORABLE MAYOR AND MEMBERS OF C T COUNCIL
FROM: WILLIAM A. HUSTON, CITY MANAGER
SUBJECT: LEGISLATIVE REPORT-SB 88
RECOMMENDATION:
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That the City Council oppose SB 88. Attached is a memorandum from the President of
the Orange County Division, League of California Cities which outlines the reasons why
SB 88, if enacted, would prevent cities from filing for .bankruptcy without first obtaining
permission from the State.
While bankruptcy is not an issue for the City of Tustin, SB 88 is another example of the
State meddling in local affairs and for that reason should be opposed.
September 4, 2009
TO: Orange County Assembly Delegation
RE: SB 88 (DeSaulnier) -GUT AND AMEND. Municipal
Bankruptcy Bill Rises Alain. OPPOSE!
Dear Members of the Assembly:
We have just learned that a classic, end-of-session "gut and amend" action
will be taken to breathe life into a proposal that didn't have the votes needed
to get out of the Senate Local Government Committee in June. SB 88 will be
amended to prevent local governments from filing for bankruptcy under
Chapter 9 of the federal bankruptcy code without first receiving the
permission of the state of California. Similar language was previously
contained in the failed measure, AB 155 (Mendoza).
We are strongly opposed to this unwarranted intrusion in what is a purely
local financial decision. The state is incapable of managing its own financial
affairs, much less offering opinions about the solvency of local government
entities. This is ill-conceived legislation that deserves to be defeated for the
following reasons:
• End-of-Session Tricks Produces Bad Legislation. SB 88 won't even
appear in print before Tuesday, September 8, 2009 - iust 96 hours
before the end of the session! Eleventh hour gimmicks and backroom
deals are the very reasons public opinion polls find the approval
ratings for the legislature just above 10 percent. This is the legislature
at its worst. SB 88 should be rejected for these end-of-session
shenanigans alone!
• This On Top of the State Budget? The state has just adopted a
budget that borrows $2 billion in property taxes from local
governments and confiscates close to another $2 billion in local
redevelopment revenues. Now it wants to prevent local governments
from going into bankruptcy to restructure debt? Action by the
legislature in the budget is one of the primary reasons many local
governments find themselves facing financial ruin and now the
legislature wants to remove an important tool to keep public services
alive? Where is the logic in this legislation?
r
• Transparency and Reform. It is more than ironic that SB 88 appears
out of thin air 96 hours before the end of the legislative session and not
long after the leadership in both houses just appointed a joint
committee to make recommendations about the reform of state
government, including "greater transparency and the reduction of
influence by special interests." Loading up SB 88 with these
amendments is hardly transparent and speaks volumes about how
serious the legislature plans to take the reform of its institution. Is
there no shame?
• Inserts Politics into a Financial Decision. SB 88 inserts politics into
a process that is now conducted by competent bankruptcy judges under
the courts' rules of procedure and evidence. The state commission that
would be given authority to approve bankruptcy proceedings under the
bill is populated by state politicians. SB 88 is substituting a political
process for what is now a deliberative process.
• New Amendments are Meaningless. The proponents have put
language into the bill that they claim gives local governments authority
to override the state commission's authority, if the commission denies
access to federal bankruptcy courts. The amendments are meaningless,
because the commission has the full authority under the bill to
approve access to bankruptcy courts with conditions. In other words
the commission could approve access, but stipulate that the local
agency cannot bring key financial issues up in bankruptcy court. These
are fig leaf amendments meant to confuse and not clarify.
• Litigious Language will Stall Bankruptcy Proceedings. The SB 88
language in the bill is confusing, contradictory and inconsistent. It will
only produce litigation that will stall a local jurisdiction's use of the
bankruptcy laws. This is completely unacceptable, especially when
there is a fiscal emergency in a jurisdiction and the local agency needs
to quickly secure the protection of bankruptcy courts. In the public
sector, bankruptcy laws are a protection to the taxpayer and the public
services provided in a community. SB 88 removes that protection.
Sincerely,
~~b
L. Allan Songstad, Jr.
President
Orange County Division, League of CA Cities
AMENDED IN ASSEMBLY SEPTEMBER 4, 2009
SENATE BILL No. 88
Introduced by Senator
DeSaulnier
(Principal coauthors: Assembly Members Mendoza and Torrico)
January 20, 2009
. An act to amend Section
53760 of, and to add Sections 8860, 8861, 8862, 8863, 8864, and 8865
to, the Government Code, relating to local government.
LEGISLATIVE COUNSEL'S DIGEST
SB 88, as amended,
Re~ie~ DeSaulnier. 99-Local government: bankruptcy.
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, or if the local public entity has
adopted a resolution to override the findings of the commission, as
specified.
Vote: majority. Appropriation: ono. Fiscal committee: ~e
yes. State-mandated local program: no.
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The people of the State of California do enact as follows:
1 SECTION 1. The Legislature hereby finds and declares all of
2 the following:
3 (a) The California Constitution and current statutory law
4 provide for a continuity and interdependence between state and
5 local government entities. Seeking financial relief through the
6 provisions of Chapter 9 (commencing with Section 901 of Title
7 I1) of the United States Code imposes costs on a municipality,
8 potentially exceeding $1 million. It can reduce service levels to
9 the taxpayers and residents of a municipality. In some
10 circumstances, it can have major short- and long-term fiscal
11 consequences to the municipality, the surrounding local public
12 entities, and the state. In 2009, bond counsel stated that "cling
13 for bankruptcy protection under Chapter 9 should be considered
14 a last resort, to be effected only after every effort has been made
15 to avoid it."
16 (b) The Legislature has an interest in monitoring the conditions
17 under which local entities seek Chapter 9 protection. The relief
18 provided through the federal courts can affect state and municipal
19 government service levels, debt, and contracts. The Legislature
20 also has a strong interest in ensuring adequate disclosure of the
21 conditions under which a municipality may seek Chapter 9
22 protection.
23 (c) To the extentfinancial relief granted through Chapter 9 can
24 affect debt service payments, the state's investors and bondholders
25 have a direct interest in the Bankruptcy Court's decisions.
26 (d) The state has established a statewide system of public
27 employee collective bargaining for state and local government
28 employers and employees intended to protect the state's interest
29 in promoting peaceful and harmonious labor relations and
30 preventing work stoppages. The validity and enforceability of
31 contracts arrived at through collective bargaining are essential
32 to maintaining labor peace and the uninterrupted delivery of vital
33 public services, and these agreements may be subject to review
34 and amendment or rescission in the event of a Chapter 9
35 bankruptcy proceeding.
36 (e) The state has established and administers statewide pension
37 systems that provide retirement and health benefits to state and
38 local agency employees, many of whose benefits rely on contracts
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1 negotiated between local agencies and the California Public
2 Employees'Retirement System, and that may be subject to review
3 and amendment or rescission in the event of a Chapter 9
4 bankruptcy proceeding.
5 (fl California is one of only 12 states that grants blanket
6 authorityfor its municipalities to petition for bankruptcy and offers
7 no opportunity for its municipalities to receive state-level,
8 prebankruptcy guidance, oversight, or assistance for those
9 jurisdictions that are truly insolvent and face no other alternative
10 to bankruptcy.
11 (~ State intervention in local affairs should only occur in
12 exceptional circumstances and not without a compelling interest
13 of statewide concern.
14 (h) Given the connection between state allocations and local
15 budgets, the state has a role in mitigating possible local
16 bankruptcy.
17 (i) It is the duty of all state and local elected officials to ensure
18 that governments provide essential services to the communities
19 they are elected to serve.
20 (j) California's taxpayers who rely on public safety, senior,
21 park, and library services, as well as those who own and operate
22 businesses in our communities deserve every effort that state and
23 local government can make to avoid the long-term devastation of
24 bankruptcy.
25 (k) The California Debt and Investment Advisory Commission
26 is the appropriate body to provide the expert oversight and
27 guidance sought by local public agencies who find themselves in
28 a fiscal crisis, given its current statutory duties to collect municipal
29 finance data, conduct research, administer educational seminars,
30 and provide information and technical assistance on behalf of
31 local public agencies and their finance professionals, and given
32 the commission's diverse membership that includes state and local
33 government financial experts.
34 SEC. 2. Section 8860 is added to the Government Code, to
35 read.•
36 8860. (a) The commission shall, upon request of a local public
37 entity, advise and, if deemed appropriate by the commission, grant
38 approval to the entity to exercise its rights pursuant to Section
39 53760, which may include conditions prescribed by the
40 commission.
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(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 (commencing with Section 54950) of Part 1 ofDivision
2 of Title S), 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 (commencing with Section 901 of Chapter
11) of the United States Code.
(B) Acknowledges that the state's fiscal and financial
responsibilities are not changed by the application or the
commission's decision pursuant to Section 8861.
(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 speck 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 I S
days allotted for a hearing, pursuant to subdivision (e).
(c) (1) Upon receipt of the information required by subdivision
(b), the commission shall evaluate the information presented and
within S days, note 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 (B) of paragraph
(1), the commission shall publish its evaluation within 30 business
days. If the commission does not respond to the request within five
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days of receipt of the request, the request shall be deemed
approved.
(d) After noticing the local public agency of the commission's
intent to further evaluate the request, the commission staff shall
spec~cally 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 ofservice 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.
(S) Has proposed a remedy that is appropriate and
proportionate to the entity's fiscal problems.
(e) After the commission conducts the evaluation, pursuant to
paragraph (2) of subdivision (c) and publishes its evaluation, the
commission shall conduct a hearing and publish a decision within
1 S 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.
(~ A governing board of a local public entity may do either of
the following if its request was denied pursuant to Section 8861:
(1) The local public entity may reapply. In making the
reapplication, the local public entity shall adopt another resolution
and submit documentation to address the deficiencies ident~ed
by the commission pursuant to Section 8861.
(2) Hold a public hearing to override the decision adopted by
the commission, and adopt a resolution to declare the public
entity's intent to exercise authority pursuant to applicable federal
bankruptcy law under Section 53760. At the public hearing, the
governing body shall make public findings about the necessity to
override the decision of the commission. If the governing body
votes to exercise its authority pursuant to Section 53760 and makes
findings to that effect, both the commission's findings and the local
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1 public entity's findings shall be submitted along with any filing of
2 a petition for bankruptcy pursuant to Section 53760.
3 (g) A county that has requested approval to file under
4 subdivision (a) may require local agencies with funds invested in
5 the county treasury to provide a five-day notice of withdrawal
6 before the county is required to comply with a request for
7 withdrawal of funds by that local agency.
8 (h) As used in this chapter, "local public entity" means any
9 city, county, city and county, district public authority, public
10 agency, or other entity that is a "municipality "within the meaning
11 of paragraph (40) of Section 101 of Title 11 of the United States
12 Code, or that qual~es as a debtor under any federal bankruptcy
13 law applicable to local public entities.
14 SEC. 3. Section 8861 is added to the Government Code, to
15 read:
16 8861. (a) The commission shall hold a public hearing to
17 consider a request made pursuant to Section 8860. The hearing
18 shall provide sufficient time for public testimony.
19 (b) The commission shall, in a recorded vote on the date of the
20 hearing, approve or deny the request.
21 (c) If the commission disapproves a request, the commission
22 shall adopt speck findings that address the deficiencies of the
23 application.
24 (d) The hearing shall be subject to the provisions of the
25 Bagley-Keene Open Meeting Act (Article 9 (commencing with
26 Section 11120) of Chapter 1 of Part 1 of Division 3 of Title 2). At
27 the same time that the notice and agenda for the hearing is posted
28 to comply with the requirements of the Bagley-Keene Open Meeting
29 Act, then the commission shall do all of the following:
30 (1) Post the notice in a location in the entity that is freely
31 accessible to members of the public.
32 (2) Deliver the notice personally, by United States mail, or by
33 facsimile transmission, to each local newspaper of general
34 circulation whose circulation area reasonably includes the local
35 public entity.
36 (3) Deliver the notice by United States mail, or by facsimile
37 transmission, to each radio or television station that has requested
38 notice in writing.
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1 (4) Request publication of the notice in the daily file of each
2 house of the Legislature at least 24 hours prior to the date of the
3 meeting, if the Legislature is in session.
4 SEC. 4. Section 8862 is added to the Government Code, to
5 read:
6 8862. (a) After the commission receives a request pursuant to
7 Section 8860, the executive director shall record costs incurred
8 by the commission to make and publish the evaluation pursuant
9 to Section 8860 and conduct the hearing required under Section
10 8861. The director shall report those costs to the commission at
11 the next regularly scheduled commission hearing.
12 (b) Upon denial of the request, the executive director or
13 commission may assess the requesting entity a fee to cover some
14 or all the costs associated with making the findings and conducting
15 the hearing. Fee revenue shall be deposited in the California Debt
16 and Investment Advisory Commission Fund.
17 (c) The commission may propose regulations to govern the
18 request and review process required under Sections 8860 and
19 8861.
20 SEC. S. Section 8863 is added to the Government Code, to
21 read.•
22 8863. In enacting Sections 8860, 8861, 8862, and the changes
23 in Section 53760, the state assumes no new or additional fiscal
24 responsibilities for local entities that may apply to the commission
25 for review pursuant to this chapter.
26 SEC. 6. Section 8864 is added to the Government Code, to
27 read:
28 8864. Sections 8860 to 8865, inclusive, shall only apply to a
29 local public entity on or after the effective date of the act adding
30 this section.
31 SEC. 7. Section 8865 is added to the Government Code, to
32 read:
33 8865. If a member of the California Debt and Investment
34 Advisory Commission is also employed as a local government
35 finance officer by an entity requesting approval pursuant to Section
36 8860, the Treasurer shall replace that member, for purposes of
37 the application of the local government that also employs the
38 member, with a person employed by a city, county, or city and
39 county, within the state, experienced in the issuance and sale of
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1 municipal bonds and nominated by associations affiliated with
2 these agencies, to preside over that application.
3 SEC. 8. Section 53760 of the Government Code is amended to
4 read:
5 53760. (a) Except as otherwise provided by statute, a local
6 public entity in this state may file a petition and exercise powers
7 pursuant to applicable federal bankruptcy~a: law if either of the
8 following applies:
9 (1) The California Debt and Investment Advisory Commission
10 has approved and the local public entity has met the conditions
11 under Section 8860.
12 (2) The governing board of the local public entity adopts a
13 resolution to override the commission's findings pursuant to
14 Section 8860.
15 (b) As used in this section, "local public entity" means any
16 county, city, district, public authority, public agency, or other
17 entity, without limitation, that is a "municipality," as defined in
18 paragraph (40) of Section 101 of Title 11 of the United States Code
19 (bankruptcy), or that qualifies as a debtor under any other federal
20 bankruptcy law applicable to local public entities.
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