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Unions, local officials square off over bankruptcy bill

Firefighters are seeking new controls on when cities can declare bankruptcy in an effort to preserve existing union contracts with local governments facing hard financial times.

Proponents of AB 155 by Assemblyman Tony Mendoza, D-Los Angeles, argue that in light of a recent federal court ruling, cities and counties may turn to bankruptcy as an option to get out of union contracts. The bill, sponsored by the California Professional Firefighters, would force a city to get state approval before it can go into default.

Mendoza’s bill passed out of the Assembly Local Government committee Wednesday.

The bill is an outgrowth of the ongoing fight between labor unions and the city of Vallejo over that city’s ongoing bankruptcy battle. A federal judge ruled last month that Vallejo’s labor contracts could be overturned in light of the city’s fiscal woes.

That has set off alarm bells among unions across the state, who now worry cities may go into default to gain leverage to renegotiate union contracts.

The bill’s sponsors say the measure is needed to prevent what they view to be frivolous bankruptcy filings by local governments. And they say the state has a right to have a voice in local bankruptcy decisions, since the costs of local bankruptcies will be borne by the state.

But local government officials say the Mendoza bill would limit local governments’ ability to manage their own finances. “Making cities beholden to some state authority to make a decision that they don’t have the expertise to make doesn’t make sense,” said Eva Spiegel, spokeswoman for the League of California Cities. “The state needs to focus on getting its own fiscal house in order.”

Spiegel said financial decisions in bankruptcy cases should be made by experts. “The bankruptcy judges really have the financial expertise,” she said. “Decisions like this one should not be political decisions.”

Mendoza’s bill would prohibit a local government from declaring bankruptcy until the California Debt and Investment  Advisory Commission gives its OK. The commission consists of the state treasurer, the governor, the state controller, two Republican lawmakers, two Democratic lawmakers, and two local government representatives.

Originally, Mendoza wanted to give the new authority to a new Local Government Bankruptcy Committee whose members would be the state controller, the state treasurer and the state director of finance.

Vallejo’s bankruptcy proceedings have been watched closely by unions and local officials who view it as a precedent-setting case that has wide-ranging implications for workers and local governments. The city reached agreements on new contracts earlier this year with unions representing police and managers. Firefighters and electrical workers have refused to renegotiate their contracts.

According to a report by CalPensions’ Ed Mendel, Vallejo began the current fiscal year last July with $77.9 million in estimated general fund revenue, less than its $79.4 million cost for labor. By January, the revenue estimate had dropped to $72 million.

But the local firefighters’ union has challenged the city’s bankruptcy filing, changing it was simply a negotiating tactic.

Local governments are increasingly under pressure to pay for retiree health care costs as part of existing contracts. A governor’s commission estimated last year that state and local governments in California could owe as much as $118 billion over the next 30 years.

Locals say without an ability to renegotiate some of those obligations, dozens of cities could be faced with bankruptcy in the near future.

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