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Municipal Bankruptcy Bill AB 1692 Passes on the Assembly Floor

Is Anyone Surprised?

June 1, 2012

The story on AB 1692 (Wieckowski) on the Assembly Floor Thursday was disappointing, but not surprising.

 

Faced with a choice between a principled stance to hold a freshman legislator and his labor sponsors to an agreement with the League and other local government groups on municipal bankruptcy, or to find some contorted justification to support a bill that reversed key provisions of that agreement, 42 legislators ultimately chose the latter.

The bill was first taken up on Wednesday but failed on the floor with a 31-28 vote. It was then granted reconsideration and taken up again on Thursday. Ultimately AB 1692 passed with a final vote of 42-24 and now goes to the Senate. 

AB 1692 passed on the Assembly floor despite having received withering editorial scrutiny and local government opposition.

A few of the editorials include:

AB 1692 is the latest chapter in a multi-year campaign led by the California Professional Firefighters to establish leverage over a community in dire fiscal conditions. The legislative battles commenced over issues related to the city of Vallejo’s bankruptcy filing in 2008. 

Last year – after a long battle over earlier versions of the legislation – the League and other agencies reached a deal on municipal bankruptcy on AB 506 (Wieckowski), which is now law. The agreement was brokered with the assistance of Sen. Lois Wolk (D-Davis) and Gov. Jerry Brown’s office during the final hours of the 2011 legislative session. AB 506 authorized a pre-bankruptcy mediation process. The process allowed for a mediator to attempt to facilitate an agreement between a municipality in fiscal difficulty and its creditors within a 60-day period that could be extended my mutual consent of the parties for an additional 30 days. No party was provided leverage over any other; it was simply a chance to explore whether agreements could be reached.

Here is what Assembly Member Wieckowski (D-Fremont) said about AB 506 after the agreement was reached in a press release issued by his office, that – given his current efforts – is surprisingly still on his website:

“This bill is the culmination of several months of negotiations between mediators, myself, local government representatives, bankruptcy attorneys, Senators and the administration,” Wieckowski said.

“By bringing all sides together, we were able to reach an agreement that establishes a neutral evaluation process that can save taxpayers’ money and avoid lengthy and expensive municipal bankruptcy cases. That is my No. 1 goal with this bill – to save taxpayers’ money by avoiding bankruptcy.”

Yet, less than five months later Assembly Member Wieckowski, supported by the California Professional Firefighters and other groups, is seeking to unravel that deal with AB 1692. Clearly, the author and his sponsors are unhappy with a process that is truly neutral. 

The League opposes AB 1692 as bad policy and an ugly precedent for future local-state negotiations. AB 1692 reverts back to concepts advanced in earlier versions of AB 506 that local governments strongly opposed including:

  • Removing the terms “mandatory mediation” and “mediator” as terms that describe the neutral party. This was pivotal to addressing the League’s concerns in the final agreement on AB 506.
  • Empowering the evaluator with arbitrator-like independent decision-making authority. These powers were removed as part of the final agreement on AB 506.
  • Changing the circumstances in which the parties agree to continue in mediation, by removing the required concurrence by the affected public entity. The ability for parties to trigger delays was a major concern with earlier versions of AB 506. The May 5 amendments to AB 1692 were represented by the author as removing these provisions, but the amendment removed only one of the two applicable provisions in the measure.

The League would like to thank the many city officials that sent opposition letters on AB 1692 and the legislators who opposed the bill or abstained from the vote on the floor.

Debate on the floor on both Tuesday and Thursday included comments from Assembly Members Bill Berryhill (R-Stockton), Cameron Smyth (R-Santa Clarita), Kristin Olsen (R-Modesto), Chris Norby (R-Fullerton), Diane Harkey (R-Laguna Niguel) and Stephen Knight (R-Antelope Valley) who all argued that it was bad policy to attempt to undo AB 506 before it has had a chance to work. Highlights from Tuesday’s floor session have been posted on the League’s YouTube channel.

While a legislative skirmish on the Assembly Floor has been lost, there is still more to come. In the Senate, the bill is expected to be assigned to Sen. Wolk’s Governance and Finance Committee. Sen. Wolk, who helped broker last year’s deal, may not be enamored with this early effort to unwind it.

City officials are encouraged to send opposition letters to their Senators. The League’s position letter and a sample opposition letter are available on the League’s website by typing “AB 1692” into the search box.



 
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