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June 8, 2012 > Assembly passes municipal bankruptcy bill

Assembly passes municipal bankruptcy bill

Submitted By Jeff Barbosa

Assemblymember Bob Wieckowski's (D-Fremont) bill to improve the neutral evaluation process public entities in dire fiscal straits can use to negotiate with creditors passed the state Assembly on May 31, 2012 with a 42-24 vote. The bill, AB 1692, will now go to the state Senate.

"I am proud that my colleagues stood up despite immense pressure to continue this effort to modify the neutral evaluation process," Wieckowski said. "This bill simply makes sure the neutral evaluator can lead this process with all the relevant financial information that is necessary. This will help the parties work to avoid bankruptcy and save the taxpayers money in the long run."

In 2011, the Legislature passed Wieckowski's AB 506, establishing the neutral evaluation process for distressed public entities. An independent neutral evaluator, mutually-selected from a list created by the public agency, leads the process. If after 60 days, a majority of the parties believe it is worthwhile to continue, negotiations are extended for 30 days. Both Stockton and Mammoth Lakes have opted to participate in the neutral evaluation process to try to reduce their debt and avoid bankruptcy.

"I look forward to continuing this discussion and incorporating lessons learned from Stockton and Mammoth Lakes' experiences," Wieckowski said. "I think we may be able to include those before the legislative session ends."

AB 1692 allows the neutral evaluator to "stop the clock" if key financial information is not forthcoming. The evaluator could also seek an independent audit to secure the information. A city could stop the process by a majority vote of its council, declare a fiscal emergency and pursue bankruptcy at any time.

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