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Warning! This is a not the current version of this legislative bill.
Italicized text includes proposed additions to law or the previous version of the bill.
Struck text includes proposed deletions to law or the previous version of the bill.

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AMENDED IN SENATE SEPTEMBER 2, 2011
AMENDED IN SENATE AUGUST 31, 2011
AMENDED IN SENATE AUGUST 15, 2011
AMENDED IN SENATE JULY 12, 2011
AMENDED IN SENATE JUNE 29, 2011
AMENDED IN ASSEMBLY MAY 31, 2011
AMENDED IN ASSEMBLY MARCH 31, 2011

INTRODUCED BY Assembly Member Wieckowski

FEBRUARY 15, 2011

An act to amend Section 53760 of, and to add Sections 53760.1,
53760.3, and 53760.5 , 53761, 53761.3, 53761.5,
53762, 53762.1, 53762.5, and 53762.7
to, the Government
Code, relating to local government.



LEGISLATIVE COUNSEL'S DIGEST


AB 506, as amended, Wieckowski. Local government: bankruptcy:
neutral evaluation.
Under existing law, any taxing agency or instrumentality of the
state may file a petition and prosecute to completion bankruptcy
proceedings permitted under the laws of the United States.
This bill would prohibit a local public entity from filing under
federal bankruptcy law unless the local public entity has
participated in a specified neutral evaluation process
with interested parties, as defined, has received a
certificate of good faith participation, and if the neutral
evaluation results in either an agreement for debt readjustment, or
if the neutral evaluator certifies in writing that continued neutral
evaluation will not contribute to a resolution of the parties'
dispute, under certain circumstances. The bill would also require the
California Debt and Investment Advisory Commission to maintain a
list of qualified neutral evaluators on its Internet Web site.
or the local public entity has declared a fiscal
emergency and has adopted a resolution by a majority vote of the
governing board at a noticed public hearing that includes findings
that the financial state of the local public entity jeopardizes the
health, safety, or well-being of the residents of the local public
entity's jurisdiction or service area absent bankruptcy protections.

The bill would additionally provide an alternative process that a
local public entity may use to file under federal bankruptcy law if
the financial difficulties of the local public entity jeopardize the
health, safety, or well-being of the residents of the local public
entity's jurisdiction or service area absent the protections of
bankruptcy. The bill would require the local public entity to submit
a petition to the Local Agency Bankruptcy Committee, which would
consist of the Treasurer, Controller, and Director of Finance, and
would require the Local Agency Bankruptcy Committee to review the
petition and approve or deny the petition, in writing, as specified.

Vote: majority. Appropriation: no. Fiscal committee: yes
no . State-mandated local program: no.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

SECTION 1. The Legislature hereby finds and declares all of the
following:
(a) The California Constitution and current statutory law provide
for a continuity and interdependence between state and local
governmental entities. Seeking financial relief through the
provisions of Chapter 9 of the United States Bankruptcy Code imposes
substantial administrative costs and expenses on a municipality,
potentially exceeding several million dollars. In order for a
municipality to be a debtor under Chapter 9, the municipality must
prove that it is eligible for Chapter 9 relief by satisfying
requirements in Section 109(c) of Title 11 of the United States Code,
that include, but are not limited to, establishing that the
municipality is insolvent, that the municipality desires to effect a
plan to adjust its debts, and that the municipality has negotiated in
good faith or attempted to negotiate in good faith with its
creditors, as specified in that section.

(b)

(a) Filing for Chapter 9 can reduce service levels to
the taxpayers and residents of a municipality. In some circumstances,
it can have major short- and long-term fiscal consequences for the
municipality, the surrounding municipalities, and the state. Filing
for bankruptcy protection under Chapter 9 should be considered a last
resort, to be instituted only after other reasonable efforts have
been made to avoid a bankruptcy filing or otherwise appropriately
plan for it. It is in the interest of the state, local governments,
and the public that local governmental entities have sufficiently
sound financial capacity to provide required services to the public
and meet their contractual and other obligations during any
restructuring or financial reorganization process. Furthermore, it is
in the best interest of the public, the state, and local
governmental entities that employees, trade creditors, bondholders,
and other interest holders be included in an appropriate
restructuring process and have an adequate understanding of the
financial capacity of local governmental entities and their
obligations, as a clear understanding of both is necessary for any
restructuring or reorganization process.
(c) The Legislature has an interest in monitoring the conditions
under which local entities may seek Chapter 9 protection. The relief
provided through the bankruptcy process can affect state and
municipal government service levels, debt, and contracts. The
Legislature has a strong interest in ensuring adequate disclosure of
the conditions under which a municipality may seek Chapter 9
protection and providing a process to make any Chapter 9 filing as
efficient as possible.

(d)

(b) To the extent financial relief granted through
Chapter 9 can affect debt service payments, the bondholders have a
direct interest in the Chapter 9 process, particularly prior to
filing. Therefore, it is important for those parties to be able to
participate in a prefiling confidential neutral evaluation process
that could assist parties in reaching a settlement and avoiding a
bankruptcy filing or otherwise lead to a prenegotiated consensual
plan of readjustment as clearly contemplated by Section 109(c) of
Title 11 of the United States Code.
(e)

(c) To the extent financial relief granted through
Chapter 9 could affect public employee compensation, employees have a
direct interest in the Chapter 9 process, particularly prior to
filing. Therefore, it is important for those parties to be able to
participate in a prefiling confidential neutral evaluation process
that could assist parties in reaching a settlement or otherwise lead
to a prenegotiated, consensual plan of adjustment and avoid a Chapter
9 filing.
(f) The state has established a statewide system of public
employee collective bargaining for state and local government
employers and employees intended to protect the state's interest in
promoting peaceful and harmonious labor relations and preventing work
stoppages. Contracts reached through collective bargaining are
essential to maintaining labor peace and the uninterrupted delivery
of vital public services, and these agreements may be subject to
review, amendment, or rejection in the event of a Chapter 9
bankruptcy proceeding. It is the intent of the Legislature that the
rights of workers to collectively bargain be fully enforced and
respected in the neutral evaluation process.

(g) Currently, 23 states do not permit municipalities to file for
bankruptcy. Twenty-seven states permit municipalities to file for
bankruptcy, but most states impose standards and guidelines for
access to bankruptcy proceedings. California is one of only 10 states
that does not restrict or otherwise limit the authority of its
municipalities to file for bankruptcy. At present, California offers
no opportunity for those municipalities that are insolvent to receive
state-level, prebankruptcy guidance, oversight, neutral evaluation,
or assistance. Nor does the state provide a mechanism for exchange of
current and projected financial information with public employee
representatives, debt and bondholders, and other interested parties
in a prebankruptcy setting even if these municipalities are not
currently insolvent but concerned about becoming insolvent and unable
to pay obligations as these obligations come due. As a result, there
is no process in this state requiring potential Chapter 9 debtors to
qualify as Chapter 9 debtors, leaving these cases subject to motions
to dismiss on any number of grounds, thus delaying earlier
resolution and increasing administrative fees, legal fees, and costs.

(h) State intervention in local affairs should only occur in
exceptional circumstances and not without a compelling interest of
statewide concern.

(i)

(d) Given the connection between state allocations and
local budgets, the state has a role in assisting municipalities to
address potential insolvency with the goal of averting municipality
bankruptcy filings where possible and providing a process designed to
make the debt restructuring process in or outside of a Chapter 9
bankruptcy as cost effective and efficient as possible for all
participants.
(j) It is the duty of all state and local elected officials to
ensure that governments provide essential services to the communities
they are elected to serve, and to respect collective bargaining
agreements reached with their employees.

(k)

(e) California's taxpayers who rely on public safety,
senior, recreational, municipal health, library, and other public
services, as well as those who own and operate businesses in our
communities, deserve every reasonable and appropriate effort that
state and local government can make to avoid adverse consequences of
Chapter 9 bankruptcy filings, particularly where a neutral evaluation
may lead to the avoidance of Chapter 9 filing by an out-of-court
resolution of outstanding obligations and disputes.
(l)

(f) Resolving municipal and state business and
financial issues in a timely, fair, and cost-effective manner is an
integral part of a successful government and is in the public
interest. It has long been recognized that alternative dispute
resolution proceedings, like a neutral evaluation, offer an
economical, discreet, and expeditious way to resolve potentially
devastating situations.
(m)

(g) Through the neutral evaluation process, the neutral
evaluator, a specially trained, neutral third party , can
assist the municipality and its creditors and stakeholders to fully
explore alternatives, while allowing the interested parties to
exchange information in a confidential environment with the
assistance and supervision of a neutral evaluator to determine
whether the municipality's contractual and financial obligations can
be renegotiated on a consensual basis.
SEC. 2.
Section 53760 of the Government Code is
amended to read:
53760. (a) Except as otherwise provided by statute, a local
public entity in this state shall not file a petition and exercise
powers pursuant to applicable federal bankruptcy law unless the local
public entity has participated in the neutral evaluation process as
provided in this article and received a good faith certification from
the neutral evaluator, and if one of the following applies:
(1) The local public entity has reached an out-of-court agreement
with all interested parties regarding a plan of adjustment pursuant
to subdivision (b) of Section 53762.5.
(2) The local public entity and the interested parties were unable
to reach an out-of-court agreement and the neutral evaluator has
certified in writing that the parties have participated in the
neutral evaluation process in good faith, pursuant to subdivision (d)
of Section 53762.5.
(3) The local public entity initiated the neutral evaluation
process and interested parties did not participate in the neutral
evaluation process, pursuant to subdivision (e) of Section 53762.5.
(b) A local public entity shall not file a petition and exercise
powers pursuant to subdivision (a) if the neutral evaluator
determines that a local entity has failed to participate in the
neutral evaluation process in good faith. Failure to participate in
good faith includes, but is not limited to, the failure to provide
accurate and essential financial information to the neutral
evaluator, the failure to attempt to reach settlement with all
interested parties to avert bankruptcy, or evidence of manipulation
to delay and obstruct a timely agreement.
(c) As used in this section, "local public entity" means any
county, city, district, public authority, public agency, or other
entity, without limitation, that is a "municipality," as defined in
paragraph (40) of Section 101 of Title 11 of the United States Code
(bankruptcy), or that qualifies as a debtor under any other federal
bankruptcy law applicable to local public entities. For purposes of
this article, "local public entity" does not include a school
district.

SEC. 2. Section 53760 of the Government
Code
is amended to read:
53760. (a) Except
as otherwise provided by statute, a
A local
public entity in this state may file a petition and exercise powers
pursuant to applicable federal bankruptcy law .
if either of the following apply:
(a) The local public entity has participated in a neutral
evaluation process pursuant to subdivision (a) of Section 53760.3.

(b) The local public entity declares a fiscal emergency and
adopts a resolution by a majority vote of the governing board
pursuant to Section 53760.5.

(b) As used in this section, "local public entity" means any
county, city, district, public authority, public agency, or other
entity, without limitation, that is a "municipality," as defined in
paragraph (40) of Section 101 of Title 11 of the United States Code
(bankruptcy), or that qualifies as a debtor under any other federal
bankruptcy law applicable to local public entities.

SEC. 3. Section 53760.1 is added to the Government Code, to read:
53760.1. As used in this article the following terms have the
following meanings:
(a) "Chapter 9" means Chapter 9 (commencing with Section 901) of
Title 11 of the United States Code.
(b) "Claim" means either of the following:

(1) A right to payment, whether or not the right is reduced to
judgment, liquidated, unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal, equitable, secured, or
unsecured.

(2) A right to an equitable remedy for breach of performance if
the breach gives rise to a right to payment, whether or not the right
to an equitable remedy is reduced to judgment, fixed, contingent,
matured, unmatured, disputed, undisputed, secured, or unsecured.

(c) "Collective bargaining" means the process by which workers
exercise their right to negotiate with an entity's or organization's
management in a good faith process to establish employee
compensation, working conditions, and other matters of mutual
interest.

(d) "Collective bargaining agreement" means a written, legally
enforceable contract for a specified period, between the management
of an entity or organization and its employees represented by a
recognized union. It sets down and defines conditions of employment,
including, but not limited to, wages, working hours and conditions,
overtime payments, holidays, vacations, health benefits, retirement
benefits, and procedures for dispute resolution.

(e)

(b) "Creditor" means either of the following:
(1) An entity that has a claim against a municipality that arose
at the time of or before the commencement of the neutral evaluation
process and whose claim represents at least 5 percent of the
municipality's general fund obligations
five million
dollars ($5,000,000) or comprises more than 5 percent of t

he local public entity's debt or obligations, whichever is less
.
(2) An entity that may have a claim against the municipality
arising out of rejection of an executory contract or unexpired lease
in a Chapter 9 case and whose claim represents at least 5
percent of the municipality's general fund obligations

five million dollars ($5,000,000) or comprises more than 5 percent
of the local public entity's debt or obligations, whichever is less
.
(f)

(c) "Debtor" means a local public entity that may file
for bankruptcy under Chapter 9.
(g)

(d) "Good faith" means participation by a party in the
neutral evaluation process with the intent to negotiate toward a
resolution of the issues that are the subject of the neutral
evaluation process, including , but not limited to,
the timely provision of complete and accurate information
to provide the relevant parties through the neutral evaluation
process with sufficient information, in a confidential manner, to
negotiate the readjustment of the municipality's debt.
(h) "Indenture trustee" means a trustee under a mortgage, deed of
trust, or indenture, under which there is an outstanding security
other than a voting trust certificate, constituting a claim against
the municipality.

(i)

(e) "Interested party" means a trustee, a committee of
creditors, a an affected creditor, an
indenture trustee, a pension fund, a bondholder, a union that, under
its collective bargaining agreements, has standing to initiate
contract or debt restructuring negotiations with the municipality, or
a representative selected by an association of retired employees of
the public entity who receive income from the public entity convening
the neutral evaluation. A local public entity may invite
holders of contingent claims to participate as interested parties in
the neutral
evaluation if the local public entity
determines that the contingency is likely to occur and the claim may
represent five million dollars ($5,000,000) or comprise more than 5
percent of the local public entity's debt or obligations, whichever
is less.

(j)

(f) "Local public entity" means any county, city,
district, public authority, public agency, or other entity, without
limitation, that is a municipality as defined in Section 101(40) of
Title 11 of the United States Code (bankruptcy), or that qualifies as
a debtor under any other federal bankruptcy law applicable to local
public entities. For purposes of this article, "local public
entity" does not include a school district.

(k)

(g) "Local public entity representative" means the
person or persons designated by the local public agency with
authority to make recommendations and to attend the neutral
evaluation on behalf of the governing body of the municipality.
SEC. 4. Section 53760.3 is added to the Government Code, to read:

53760.3. (a) A local public entity may initiate the neutral
evaluation process pursuant to this article. A neutral evaluator
shall oversee the neutral evaluation process, and shall facilitate
all of the requirements set forth in subdivision (b).
(b) (1) The local public entity shall make complete disclosure to
the neutral evaluator of all documentation necessary to clearly
demonstrate whether the local public entity is solvent, including,
but not limited to, financial reports, expenditures, assets, and any
other relevant documentation.
(2) The local public entity and any interested party or interested
parties participating in the neutral evaluation process shall
present information to each other, that shall include, but is not
limited to, the status of funds of the local public entity that
clearly distinguishes between general funds and special funds.
(3) The local public entity and any interested party shall present
the entity's proposed plan of readjustment.
(4) The local public entity and all interested parties
participating in the neutral evaluation process shall negotiate in
good faith.
(c) The neutral evaluation process shall be confidential and is
subject to Section 53762.7.
SEC. 5. Section 53760.5 is added to the Government Code, to read:

53760.5. (a) A local public entity may initiate the neutral
evaluation process when the local public entity is or likely will
become unable to meet its financial obligations as and when those
obligations are due or become due and owing.
(b) A neutral evaluation shall be conducted through an alternative
dispute resolution program within the state and in accordance with
this article.
(c) The role of the neutral evaluator shall be to assist all
interested parties in reaching an equitable settlement to avert a
Chapter 9 filing. The neutral evaluator shall also assist the parties
in identifying the anticipated legal costs and time associated with
a Chapter 9 filing relative to the local public entity's budget
shortfall. The neutral evaluator may consult with alternative dispute
resolution service providers, the California Debt and Investment
Advisory Commission, the California State Mediation and Conciliation
Service, the Executive Office for United States Trustees, retired
bankruptcy judges, or other appropriate entities in connection with
the neutral evaluation regarding issues that are not confidential or
in connection with any matters with the consent of the parties
participating in the neutral evaluation.
SEC. 6. Section 53761 is added to the Government Code, to read:
53761. (a) A neutral evaluator shall meet all of the following
qualifications:
(1) At least 10 years of high-level business or legal practice
involving bankruptcy or service as a United States Bankruptcy Judge.
(2) Experience and training in conflict resolution and alternative
dispute resolution.
(3) Commencing January 1, 2013, completion of a mandatory training
program in municipal organization, municipal debt restructuring,
Chapter 9 bankruptcy, public finance, taxation, California
constitutional law, California labor law, federal labor law, and
municipal finance dispute resolution, provided through an alternative
dispute resolution program within the state.

53760.3. (a) A local public entity may initiate
the neutral evaluation process if the local public entity is or
likely will become unable to meet its financial obligations as and
when those obligations are due or become due and owing. The local
public entity shall initiate the neutral evaluation by providing
notice by certified mail of a request for neutral evaluation to all
interested parties as defined in Section 53760.1.

(b) Interested parties shall respond within 10 business days of
receipt of notice of the local public entity's request for neutral
evaluation.

(c) Interested parties agreeing to participate in the neutral
evaluation shall select the neutral evaluator to oversee the neutral
evaluation process and shall facilitate all discussions in an effort
to resolve their disputes.

(d) A neutral evaluator shall have experience and training in
conflict resolution and alternative dispute resolution and shall meet
at least one of the following qualifications:

(1) At least 10 years of high-level business or legal practice
involving bankruptcy or service as a United States Bankruptcy Judge.

(2) Professional experience or training in municipal finance and
one or more of the following issue areas:

(A) Municipal organization.

(B) Municipal debt restructuring.

(C) Municipal finance dispute resolution.

(D) Chapter 9 bankruptcy.

(E) Public finance.

(F) Taxation.

(G) California constitutional law.

(H) California labor law.

(I) Federal labor law.

(b)

(e) The neutral evaluator shall be impartial,
objective, independent, and free from prejudice. The neutral
evaluator shall not act with partiality or prejudice based on any
participant's personal characteristics, background, values or
beliefs, or performance during the neutral evaluation process.

(c) (1)

(f ) The neutral evaluator shall avoid a
conflict of interest or the appearance of a conflict of interest
during the neutral evaluation process. The neutral evaluator shall
make a reasonable inquiry to determine whether there are any facts
that a reasonable individual would consider likely to create a
potential or actual conflict of interest. Notwithstanding subdivision
(b) of Section 53761.3 (n) , if the
neutral evaluator is informed of the existence of any facts that a
reasonable individual would consider likely to create a potential or
actual conflict of interest, the neutral evaluator shall disclose
these facts in writing to the local public entity and all interested
parties involved in the neutral evaluation. If any party to the
neutral evaluation objects to the neutral evaluator, that party shall
notify all other parties to the neutral evaluation, including the
neutral evaluator, within 15 days of receipt of the notice from the
neutral evaluator, the neutral evaluator shall withdraw and a new
neutral evaluator shall be selected pursuant to subdivisions (a) and
(b) of Section 53761.3.
(2)

(g) Prior to the neutral evaluation process, the
neutral evaluator shall not establish another relationship with any
of the parties in a manner that would raise questions about the
integrity of the neutral evaluation, except that the neutral
evaluator may conduct further neutral evaluations regarding other
potential local public entities that may involve some of the same or
similar constituents to a prior mediation.
(d)

(h) The neutral evaluator shall conduct the neutral
evaluation process in a manner that promotes voluntary, uncoerced
decisionmaking in which each party makes free and informed choices
regarding the process and outcome.
(e)

(i) The neutral evaluator shall not impose a settlement
on the parties. The neutral evaluator shall use his or her best
efforts to assist the parties to reach a satisfactory resolution of
their disputes. Subject to the discretion of the neutral evaluator,
the neutral evaluator may make oral or written recommendations for
settlement or plan of readjustment to a party privately or to all
parties jointly.
(f)

(j) The neutral evaluator has a duty to
instruct and
shall inform the local public
entity and all parties of the limitations
provisions
of Chapter 9 relative to other chapters of the
bankruptcy codes. This instruction shall highlight the limited
authority of United States bankruptcy judges in Chapter 9 such as the
lack of flexibility available to judges to reduce or cram down debt
repayments and similar efforts not available to reorganize the
operations of the city that may be available to a corporate entity.

(g)

(k) The neutral evaluator may request from the parties
documentation and other information that the neutral evaluator
believes may be helpful in assisting the parties to address the
obligations between them. This documentation may include the
status of funds
of the local public entity that clearly
distinguishes between general funds and special funds, and the
proposed plan of readjustment prepared by the local public entity.

(l) The neutral evaluator shall provide counsel and guidance to
all parties, shall not be a legal representative of any party, and
shall not have a fiduciary duty to any party.

(h) In the event a complete settlement of all or some issues in
dispute is not achieved within the scheduled neutral evaluation
session or sessions, the neutral evaluator may, at the neutral
evaluator's discretion, continue to communicate with the parties in
an ongoing effort to facilitate a complete settlement in order to
avoid a Chapter 9 filing.

(i) The neutral evaluator shall
provide counsel and guidance to all parties and shall not be a legal
representative of any party and shall not have a fiduciary duty to
any party.

(j)

(m) In the event of a settlement with all interested
parties, the neutral evaluator may assist the parties in negotiating
a prepetitioned, preagreed plan of readjustment in connection with a
potential Chapter 9 filing.
(k) The California Debt and Investment Advisory Commission, in
accordance with its mission to provide information, education, and
technical assistance on debt issuance and public fund investments to
local public agencies, shall maintain on its Internet Web site a list
of qualified neutral evaluators. Inclusion on the list shall be
determined based on whether a potential neutral evaluator meets the
minimum requirements described in subdivision (a).


SEC. 7. Section 53761.3 is added to the Government Code, to read:

53761.3. (a) The parties may select a neutral evaluator from the
list of qualified evaluators pursuant to Section 53761 through a
mutually agreed upon process.

(b) If the public entity and interested parties fail to agree on
an evaluator within five days of the public entities governing board
or council passing a resolution to initiate the neutral evaluation
process, the public entity shall select seven qualified evaluators
from the list created pursuant to subdivision (k) of Section 53761,
and the three largest creditors shall alternately strike names from
the list, with the first interested party to strike names being
determined by the value of the undisputed claim each holds against
the public entity.

(c)

(n) If at any time during the neutral evaluation process
the local public entity and a majority of the representatives of the
interested parties participating in the neutral evaluation wish to
remove the neutral evaluator, the local public entity or any
interested party may make a request to the other interested parties
to remove the neutral evaluator. If the local public entity and the
majority of the interested parties agree that the neutral evaluator
should be removed, the parties shall select a new neutral evaluator
pursuant . to subdivisions (a)
and (b).

SEC. 8. Section 53761.5 is added to the Government Code, to read:

53761.5. At the request of the neutral evaluator, the local
public entity and any party participating in the neutral evaluation
shall produce all documents including current financial information
and projections addressing future financial obligations affecting the
local public entity. The neutral evaluator shall keep this
information confidential and shall not disclose to parties
participating in the neutral evaluation process without first
obtaining the consent of the public entity or the interested parties
participating in the neutral evaluation that provided the
information. The neutral evaluator may request the submission or
exchange of memoranda on issues, including the underlying interests,
and the history of the parties' prior negotiations.


SEC. 9. Section 53762 is added to the Government Code, to read:

53762. (a) At the request of the neutral evaluator, each
interested party shall provide at least one

(o) The local public entity and all interested parties
participating in the neutral evaluation process shall negotiate in
good faith.

(p) The local public entity and
interested parties shall provide a
representative of each party
to attend all neutral evaluation conferences. Each party's
sessions. Each representative shall have
the
authority to settle and resolve disputes or shall be in a
position to present any proposed settlement or plan of readjustment
to the governing body or membership for approval and
implementation.

(b) The local public entity shall provide a local public entity
representative who shall represent the local public entity's interest
in the neutral evaluation and who shall be in a position to present,
recommend, and advocate for any proposed settlement or plan of
readjustment to the governing body of the local public entity.

(c) An interested
party may be represented by legal counsel, but shall inform all
parties of the representation, and shall attend the sessions in
person.
parties participating in the neutral
evaluation.

(d)

(q) The parties shall maintain the confidentiality of
the neutral evaluation process and shall not disclose statements
made, information disclosed, or documents prepared or produced,
during the neutral evaluation process, as specified in
Section 53762.7. This subdivision shall not apply to documents that
were not confidential prior to the start of the neutral evaluation
process.

SEC. 10. Section 53762.1 is added to the Government Code, to
read:

53762.4. The neutral evaluation process shall end if any of the
following occur:

(a) The parties execute an agreement of settlement.


(b) The parties reach an agreement or proposed plan of
readjustment that requires the approval of a bankruptcy judge.

(c) The neutral evaluator certifies in writing that one or more of
the parties has not participated in good faith, that no resolution
has been reached, and that further efforts at the neutral evaluation
process would not contribute to a resolution of the parties' dispute.

(d) The neutral evaluator certifies in writing that the parties
have participated in good faith but the parties have reached an
impasse.

(e) The neutral
evaluator certifies in writing that a neutral evaluation was
initiated by the local public entity but that no interested parties
participated.
at the conclusion of the neutral
evaluation process or during any bankruptcy proceeding unless either
of the following occur:

(1) All persons that conduct or otherwise participate in the
neutral evaluation expressly agree in writing, or orally in
accordance with Section 1118 of the Evidence Code, to disclosure of
the communication, document, or writing.

(2) The information is deemed necessary by a judge presiding over
a bankruptcy proceeding pursuant to Chapter 9 of Title 11 of the
United States Code to determine eligibility of a municipality to
proceed with a bankruptcy proceeding pursuant to Section 109(c) of
Title 11 of the United States Code.

(r) The neutral evaluation established by this process shall not
last for more than 60 days following the date the evaluator is
selected, unless the local public entity or a majority of interested
parties want to continue and agree to an extension.

(s)The local public entity shall pay 50 percent of the costs of
neutral evaluation, including but not limited to the fees of the
evaluator, and the creditors shall pay the balance, unless otherwise
agreed to by the parties.

(t) The neutral evaluation process shall end if any of the
following occur:

(1) The parties execute an settlement agreement.

(2) The parties reach an agreement or proposed plan of
readjustment that requires the approval of a bankruptcy judge.


(3) The neutral evaluation process has exceeded 60 days following
the date the neutral evaluator was selected, the parties have not
reached an agreement, and the parties do not agree on extension of
the neutral evaluation process past the initial 60 day time period.

(4) The neutral evaluator confirms that a neutral evaluation was
initiated by the local public entity but that no interested parties
participated.

(5) The fiscal condition of the local public entity deteriorates
to the point that a fiscal emergency is declared pursuant to Section
53076.5 and necessitates the need to file a petition and exercise
powers pursuant to applicable federal bankruptcy law.

(u) If the 60 day time period for neutral evaluation has expired,
including any extension agreed to by the local public entity, and the
neutral evaluation is complete with differences resolved, the
neutral evaluation shall be concluded. If the neutral evaluation
process does not resolve all pending disputes with creditors the
local public entity may file a petition and exercise powers pursuant
to applicable federal bankruptcy law if, in the opinion of the
governing board of the local public entity, a bankruptcy filing is
necessary.

SEC. 4. Section 53760.5 is added to the
Government Code
, to read:
53760.5. Notwithstanding Section 53760.3, a local public entity
may file a petition and exercise powers pursuant to applicable
federal bankruptcy law, if the local public entity declares a fiscal
emergency and adopts a resolution by a majority vote of the governing
board at a noticed public hearing that includes findings that the
financial state of the local public entity jeopardizes the health,
safety, or well-being of the residents of the local public entity's
jurisdiction or service area absent the protections of Chapter 9. The
resolution shall make findings that the public entity is or will be
unable to pay its obligations within the next 60 days. Prior to a
declaration of fiscal emergency and adoption of a resolution, the
local public entity shall place an item on the agenda of a noticed
public hearing on the fiscal condition of the entity to take public
comment.

SEC. 11.
Section 53762.5 is added to the
Government Code, to read:
53762.5. (a) Notwithstanding Section 53760, if the financial
difficulties of the local public entity jeopardize the health,
safety, or well-being of the residents of the local public entity's
jurisdiction or service area absent the protections of Chapter 9, the
local public entity may, with the written approval of the Local
Agency Bankruptcy Committee, under the terms and conditions that the
committee may impose, file for adjustment of debts pursuant to
Chapter 9.
(b) The Local Agency Bankruptcy Committee shall consist of the
Treasurer, the Controller, and the Director of Finance.
(c) The Local Agency Bankruptcy Committee shall provide its
written approval or denial of consent to file a petition and exercise
powers pursuant to applicable federal bankruptcy law not later than
five calendar days from receipt of the request of the local public
entity. If the Local Agency Bankruptcy Committee determines that the
local public entity's financial difficulties have or will result in
an emergency as described in subdivision (a), the local public entity
may proceed with a Chapter 9 filing without having convened or
completed a neutral evaluation process.
(d) If the Local Agency Bankruptcy Committee does not respond to
the request within seven days after the receipt of the request, the
request shall be considered approved.
(e) A local public entity that has requested approval to file
under subdivision (a) may require local agencies with funds invested
in the local public entity's treasury to provide a seven-day notice
of withdrawal before the county is required to comply with a request
for withdrawal of funds by a local public entity.
(f) Notwithstanding subdivision (a) of Section 11125, the Local
Agency Bankruptcy Committee shall provide notice of its meeting at
least 24 hours in advance of the meeting. The notice shall be posted
in a location within the local public entity that is freely
accessible to members of the public. The notice shall be delivered
personally, by United States mail, electronic mail, or by facsimile
transmission to each local newspaper of general circulation whose
circulation area reasonably includes the municipality and shall
similarly be delivered to each radio or television station that has
requested notice in writing. The notice shall be received by the
newspaper, radio, or television station at least 24 hours prior to
the date of the meeting specified in the notice. In addition, if the
Legislature is in session, the committee shall request that the
meeting notice be published in the daily file of each house at least
24 hours prior to the date of the meeting.
(g) The Local Agency Bankruptcy Committee's approving or denying
of a filing under this section, shall not obligate the state, in any
manner, regarding financing a plan for adjustment of the municipality'
s debts or any act relating to that financing.
(h) This section shall apply only to a local public entity that
files as a debtor, as specified in subdivision (a), on or after the
effective date of this article.

SEC. 12.
Section 53762.7 is added to the
Government Code, to read:
53762.7. (a) Evidence of anything said or any admission made for
the purpose of, in the course of, or pursuant to, a neutral
evaluation shall not be admissible or subject to discovery, and
disclosure of the evidence shall not be compelled, in any
arbitration, administrative adjudication, civil action, or other
noncriminal proceeding in which, pursuant to law, testimony can be
compelled to be given.
(b) Any writing, as defined in Section 250 of the Evidence Code,
that is prepared for the purpose of, in the course of, or pursuant to
a neutral evaluation shall not be admissible or subject to
discovery, and disclosure of the writing shall not be compelled, in
any arbitration, administrative adjudication, civil action, or other
noncriminal proceeding in which, pursuant to law, testimony can be
compelled to be given.
(c) Any communication, negotiation, or settlement discussion by
and between participants in the course of a neutral evaluation shall
remain confidential.
(d) Evidence otherwise admissible or subject to discovery outside
of a neutral evaluation shall not be or become inadmissible or
protected from disclosure solely by reason of its introduction or use
in a neutral evaluation.
(e) A neutral evaluator or any other person shall not be allowed
to submit to a court or other adjudicative body, and a court or other
adjudicative body shall not consider, any report, assessment,
evaluation, recommendation, or finding of any kind by the neutral
evaluator concerning a neutral evaluation conducted by the neutral
evaluator.
(f) A communication or a writing, as defined in Section 250 of the
Evidence Code, that is made or prepared for the purpose of, or in
the course of, or pursuant to, a neutral evaluation is not made
inadmissible, or protected from disclosure, by this chapter if either
of the following conditions is satisfied:
(1) All persons that conduct or otherwise participate in the
neutral evaluation expressly agree in writing, or orally in
accordance with Section 1118 of the Evidence Code, to disclosure of
the communication, document, or writing.
(2) The communication, document, or writing was prepared by or on
behalf of fewer than all the neutral evaluation participants, those
participants expressly agree to its disclosure, and the
communication, document, or writing does not disclose anything said
or done or any admission made in the course of the neutral
evaluation.
(g) A written settlement agreement prepared in the course of, or
pursuant to, a neutral evaluation, is not made inadmissible, or
protected from disclosure, by this section if the agreement is signed
by the settling parties and any of the following conditions are
satisfied:
(1) The agreement provides that it is admissible or subject to
disclosure, or words to that effect.
(2) The agreement provides that it is enforceable or binding, or
words to that effect.
(3) All parties to the agreement expressly agree to its
disclosure.
(4) The agreement is used to show fraud, duress, or illegality
that is relevant to an issue in dispute.
(h) An oral agreement made in the course of, or pursuant to, a
neutral evaluation is not made inadmissible, or protected from
disclosure, by this chapter if any of the following conditions are
satisfied:
(1) The oral agreement is recorded by a court reporter or reliable
means of audio recording.
(2) The terms of the oral agreement are recited on the record in
the presence of the parties and the mediator, and the parties express
on the record that they agree to the terms recited.
(3) The parties to the oral agreement expressly state on the
record that the agreement is enforceable or binding, or words to that
effect.
(4) The recording is reduced to writing and the writing is signed
by the parties within 72 hours after it is recorded.
(5) The agreement is used to show fraud, duress, or illegality
that is relevant to an issue in dispute.
(i) Anything said, any admission made, or any writing that is
inadmissible, protected from disclosure, and confidential under this
chapter before a neutral evaluation ends, shall remain inadmissible,
protected from disclosure, and confidential to the same extent after
the neutral evaluation ends.
(j) If a person subpoenas or otherwise seeks to compel a neutral
evaluator to testify or produce a writing, as defined in Section 250
of the Evidence Code, and the court or other adjudicative body
determines that the testimony or writing is inadmissible under this
section, or protected from disclosure under this section, the court
or adjudicative body making the determination shall award reasonable
attorney's fees and costs to the neutral evaluator against the person
seeking the testimony or writing.
(k) Any reference to a neutral evaluation during any subsequent
trial is an irregularity in the proceedings of the trial for the
purposes of Section 657 of the Code of Civil Procedure. Any reference
to a neutral evaluation during any other subsequent noncriminal
proceeding is grounds for vacating or modifying the decision in that
proceeding, in whole or in part, and granting a new or further
hearing on all or part of the issues, if the reference materially
affected the substantial rights of the party requesting relief.

SEC. 13. SEC. 5. The Legislature
finds and declares that Sections 8 and 11 of this act, which
add Sections 53761.5 and 53762.5
Section 4 of this
act which adds Section 53760.3
to the Government Code, impose a
limitation on the public's right of access to the meetings of public
bodies or the writings of public officials and agencies within the
meaning of Section 3 of Article I of the California Constitution.
Pursuant to that constitutional provision, the Legislature makes the
following findings to demonstrate the interest protected by this
limitation and the need for protecting that interest:
To facilitate the process to avoid municipal bankruptcy, it is
necessary to provide for secure documents.