California Lawmakers Won’t Amend Municipal Bankruptcy Law

California lawmakers won’t consider changes to a law that failed to avert three municipal bankruptcies in the past six weeks, an aide to the Senate president said.

A labor-backed bill intended to strengthen protections for creditors, including public-employee unions, has been set aside by Senate President Pro Tem Darrell Steinberg, according to Mark Hedlund, a spokesman for the Sacramento Democrat.

Stockton, Mammoth Lakes and San Bernardino all sought court protection since the end of June. Under current state law, most distressed municipalities must attempt to renegotiate financial and contractual obligations with investors and public-employee unions through mediation before filing for bankruptcy. The new bill would have broadened the mediator’s powers and loosened deadlines on negotiations.

“I don’t think we need another debate on municipal bankruptcy here,” Steinberg told reporters Aug. 6 in Sacramento, according to a transcript provided by Hedlund.

The bill, opposed by the League of California Cities, was written by the author of the existing law, state Assemblyman Bob Wieckowski, a Fremont Democrat.

California has afforded local governments “significant fiscal independence” including the ability to seek bankruptcy protection, the state’s nonpartisan Legislative Analyst’s Office said today in a report. The report didn’t weigh in on the proposed changes.

“Generally, local governments in California are provided broad discretion over when to initiate a Chapter 9 case, as well as how to use the tools of Chapter 9 to adjust their obligations,” the analyst said. “Chapter 9 also does not interfere with a local government’s authority over its own affairs or alter its primary functions or governance structure.”

To contact the reporter on this story: James Nash in Los Angeles at jnash24@bloomberg.net

To contact the editor responsible for this story: William Glasgall at wglasgall@bloomberg.net

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