A number of recent California cities have
filed for bankruptcy, and this has raised concerns in some circles that this could
be the start of a trend of more cities in the Golden State making plans for
Chapter 9 filings. A bill that was
designed to change a state law that calls for mediations between creditors and
municipalities before going ahead with plans for bankruptcy will likely not proceed.
The bill was introduced to restrict the
number of Chapter 9 bankruptcy filings by municipalities. Over the past few months, a number of California
cities have filed for bankruptcy, and these have not only rocked the California bankruptcy lawyer community,
but have also garnered nationwide attention.
In 2008, the city of Vallejo filed for
bankruptcy. Soon after that,
California passed its Chapter 9 law, which calls for mediations and
negotiations between municipalities and creditors.
Soon after the law was passed, a string of
other cities including Stockton, San Bernardino and Mammoth Lakes also filed bankruptcy
papers. Stockton's bankruptcy was
the most disturbing, because this was the largest bankruptcy filing by any U.S.
city.
A new proposal would make changes to the
state law to give more powers to mediators during negotiations between
creditors and disparities. This
would help place several restrictions for municipalities that are determined to
file for Chapter 9 bankruptcy. The
bill has been strongly supported by public employee unions, who have found that
many of the other recent municipality bankruptcies have resulted in the rights
of public union employees being relegated to the back seat. When a large city files for bankruptcy,
it is public pension and health benefits that are at serious risk of being
limited.
However, an aide to the Senate President
recently confirmed that this bill is likely not to proceed.
