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Bill 155 Threatens to Make Bankruptcy Filing Difficult for CA Cities

Los Angeles and other financially hurt California cities have recently received some bad news in the form a bill, on its way to the Governor for approval. The bill was created to clamp down on municipal bankruptcy filings, and if approved, can make filing for Chapter 9 municipal bankruptcy very difficult.

Assembly Bill 155 dictates a city may only file for bankruptcy if it receives approval from the California Debt Investment Advisory Commission. The commission currently provides information on debt to public agencies.

The bill states, “California’s taxpayers who rely on public safety, senior, park and library services, as well as those who own and operate businesses in our communities, deserve every effort that state and local government can make to avoid the long-term devastation of bankruptcy.”

The bill will protect retirement pensions and health benefits for public employees—which would be stymied and later renegotiated during the bankruptcy process. Experts say this bill could greatly affect Los Angeles as it is presently dealing with a tremendous budget shortfall.

Los Aangeles recently projected its revenues will fall 11.2% short of projected expenses this fiscal year, which adds up to a deficit of roughly $492 million. The city had a shortfall of 12.1% last year.

The former mayor of Los Angeles, Richard Riordan, is now calling for bankruptcy while the present mayor, Antonio Villaraigosa proposes large cuts to city payrolls. Villaraigosa said a few months ago he would have to cut over 3,000 city jobs, however, he later agreed with City Council to, instead, lay off between 761-1,761 positions.

Of note, the city of Vallejo, just north of San Francisco, has already filed for bankruptcy back in 2008. If Governor Schwarzenegger approves this bill, it would alter the ability of other cities to file for Chapter 9.