California Muni Bankruptcies to Get Tougher

California has a host of insolvent cities. Rather than allowing them to avail themselves of the tools of a Chapter 9 filing — the muni equivalent of Chapter 11 — as Vallejo recently did, it looks like California is set to make bankruptcy tougher to file for. If so, that would be a tragic error in this insolvent state.

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The California State Assembly Committee on Local Government will hold hearings this week on AB 155, which would require local governments to get permission to declare bankruptcy from the California Debt and Investment Advisory Commission.

The bill, sponsored by Assembly member Tony Mendoza, D-Norwalk, has drawn the support of a host of major labor unions, including the California Labor Federation and the California Nurses Association. But it has drawn opposition from local government groups, including the League of California Cities and the California State Association of Counties.

"If one city declares bankruptcy, we’re all going to be negatively affected," Mendoza said. "That’s why we’re trying to make sure that before they do file bankruptcy that it is the best and last resort for any community."

…"If that had been in place it probably would have prevented or substantially stalled Vallejo’s going into bankruptcy," said Dwight Stenbakken, deputy executive director of the League of California Cities. That’s a problem because local governments need to act quickly when they’re on the brink of insolvency.