AB 506: A Life Saver in a Fiscal Storm for Sinking City?
In the March 10, 2012 Los Angeles Times, Diana Marcum poignantly reports about the fiscal plight of the port city of Stockton, and its human cost. Stockton has descended from boom to the brink of bankruptcy. Thriving back in 2004, Stockton has been hit hard by the real estate crisis, the loss of municipal revenue, and extensive commitments, such as employee retirement benefits, that it struggles to meet.
There is an interesting mediation angle to the story.
The City of Stockton is taking advantage of a new state law, AB 506, to mediate with creditors. “Taking advantage” may overstate the case, because the new law actually requires municipalities to mediate or declare a fiscal emergency before they can go the bankruptcy route.
Above: “Farm Security clients during applications for aid under Tenant Purchase Act. Stockton, California. December, 1938.” Dorothea Lange, photographer. Library of Congress.
A city can file a petition for bankruptcy under Ch. 9 of the Bankruptcy Code. AB 506 adds another step by barring local government agencies from filing for bankruptcy until they undergo mediation or hold a public hearing and declare a fiscal emergency. Whereas in the past, California imposed no pre-conditions to filing bankruptcy, now filing bankruptcy is to be treated as a last resort. AB 506 passed the Assembly in September 2011 on a party-line vote, 50-24, with only one Republican voting for it.
Stockton will have to mediate with its creditors and municipal employees before it can play a bankruptcy card. Good luck to Stockton and its people.
Click here for text of AB 506.
Above: “Near Stockton, California. November 17, 1938. One of six successful applicants out of seventy-five. Purchasing farm under Bankhead Jones Act. "When a feller is in for himself, if he makes it, it's his. If he don't make it, it's his fault alone." (Tenant Purchase).” Dorothea Lange, photographer. Library of Congress.
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