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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.

(pdf version)
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 8860,
53760.3, 53760.5, 53761, 53761.3, 53761.5, 53762, 53762.5,
53762.6, 53762.7, 53762.8, and 53763 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 provide that a local public entity shall not file
under federal bankruptcy law unless the local public entity has
participated in a 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 provide technical assistance as a neutral third party as necessary
in any neutral evaluation process, as specified.
The bill would require the State Auditor to review specified
information submitted by the local public entity. The bill would
additionally provide an alternative process that a local public
entity may use to fill under federal bankruptcy law if the local
public entity has been participating in the neutral evaluation
process and the local public entity has submitted certain information
to the State Auditor and the State Auditor has determined that the
local public entity is insolvent.

Vote: majority. Appropriation: no. Fiscal committee: yes.
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
government
governmental entities. Seeking
financial relief through the provisions of Chapter 9 of the
federal 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 shall must
make certain showings required by subdivision (c) of Section 109 of
Title 11 of the United State Code, that include, but are not limited
to, establishing that the municipality is insolvent, the municipally
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) Filing for Chapter 9 can reduce service levels to the
taxpayers and residents of a municipality. In some circumstances, it
can have major short-term 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
government
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
government governmental entities, the
employees, investors, bondholders, and other interestholders be
included in an appropriate restructuring process and have an adequate
understanding of the financial capacity of local government
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) To the extent financial relief granted through Chapter 9 can
affect debt service payments, the state's investors and bondholders
have a direct interest in the Chapter 9 process, particularly prior
to filing. So 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 subdivision (c) of
Section 109 of Title 11 of the United States Code.
(e) 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 agreement 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. However, it is the intent of the Legislature that the
rights of workers to collectively bargain shall 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 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) 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) 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 out-of-court resolution of outstanding obligations and disputes or
to a preagreed, prenegotiated plan of readjustment.
(l) 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) 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.

(n) The California Debt and Investment Advisory Commission's
current statutory duties to collect municipal finance data, conduct
research, administer educational seminars, and provide information
and technical assistance on behalf of municipalities, and given the
commission's membership, it is appropriate that the commission be
able to provide technical assistance as a neutral party at the
request of a municipality contemplating restructuring or a Chapter 9
filing or by a stakeholder concerned about the financial condition of
the municipality.
SEC. 2. Section 8860 is added to the Government Code, to read:
8860. The commission shall, when requested by a local public
agency or a neutral evaluator, serve as a neutral third party to
provide technical assistance in any neutral evaluation process
conducted pursuant to Article 5 (commencing with Section 53760) of
Chapter 4 of Part 1 of Division 2 of Title 5.
SEC. 3. 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 Section 8860 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
and has disclosed documents arising from the process required by
Section 8860 this article .
(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, 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 article, "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. 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 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 shall
make present information to each other, which
shall include, but is not limited to, the status of funds of the
local public agency that clearly distinguishes between general funds
and special funds.
(3) The local public entity and any interested party shall present
its proposed plan of readjustment.
(4) The local public entity and any interested party shall
negotiate in good faith.
(c) The neutral evaluation process shall be confidential, and is
subject to Section 703.5 and Chapter 2 (commencing with
Section 1115) of Division 9 of the Evidence Code.

Section 53762.8.

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 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
Section 8860 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 associated with a Chapter
9 filing relative to the local public entity's budget shortfall. The
neutral evaluator may consult with alternate dispute resolution
service providers, the California Debt and Investment Advisory
Commission, the California State Mediation and Conciliation
Service,
the Executive Office for U.S. Trustees, retired
bankruptcy judges, or other appropriate entities in establishing and
administering the neutral evaluation regarding issues that are not
confidential.
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.
(2) Experience and training in conflict resolution and alternative
dispute resolution.
(3) 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.
(b) 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) 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, 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 subdivision (a) of
Section 53761.3.

(2) 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) 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) 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) The neutral evaluator has a duty to instruct and inform the
local public entity and all parties of the limitations 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) 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.
(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) In the event of a settlement with all interested parties, the
neutral evaluator may assist the parties in negotiating a
prepetition, preagreed plan of readjustment in connection with a
potential Chapter 9 filing.
(k) The neutral evaluator shall maintain the confidentiality of
all the information obtained by the neutral evaluator in the neutral
evaluation process, unless otherwise agreed to by the parties. The
neutral evaluation shall be subject to Chapter 2 (commencing with
Section 1115) of Division 9 of the Evidence Code.
SEC. 7. Section 53761.3 is added to the
Government Code
, to read:
53761.3. (a) The parties shall select a neutral evaluator through
a mutually agreed upon process.
(b) If at any time during the neutral evaluation process the local
public entity and a majority of interested parties 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
subdivision (a).

SEC. 7. SEC. 8. Section 53761.5 is
added to the Government Code, to read:
53761.5. The parties shall exchange all documents including
current financial information and projections addressing future
financial obligations affecting the local public entity or that may
hinder a resolution of the issues before the neutral evaluator. 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. Information that a party wishes to
keep confidential may be sent to the neutral evaluator in a separate
communication clearly marked "CONFIDENTIAL."
SEC. 8. SEC. 9. Section 53762 is
added to the Government Code, to read:
53762. (a) Each interested party shall provide at least one
representative of each party to attend all neutral evaluation
conferences. Each party's representative shall have 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 propose
any 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
must inform all parties of the representation.
(d) 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 process, as specified
in Sections 1119, 1120, 1121, and 1122 of the Evidence Code,
unless all parties consent in writing to the disclosure

Section 53762.8 . This subdivision does not apply to
documents that were not confidential prior to the start of the
neutral evaluation process.
SEC. 9. SEC. 10. Section 53762.5 is
added to the Government Code, to read:
53762.5. 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 and further efforts at the neutral evaluation process would
not contribute to a resolution of disputes.
(e) The neutral evaluator certifies in writing that a neutral
evaluation was initiated by the local public entity but that no
interested parties participated.
SEC. 11. Section 53762.6 is added to the
Government Code , to read:
53762.6. (a) Once a local public entity has initiated the neutral
evaluation process pursuant to this article, to help ensure that a
local public entity meets the insolvency requirement in subdivision
(c) of Section 109 of Title 11 of the United States Code and to
assist the local public entity and the interested parties in the
neutral evaluation process, the local public entity may submit
information to the State Auditor describing the public entity's
current financial position. This information shall include all of the
following:
(1) The local public entity's revenues and estimated revenues for
the relevant time period.
(2) The local public entity's anticipated ongoing expenses.
(3) The local public entity's proposed plan for restoring the
soundness of the local public entity's financial position, if they
have one.
(4) An itemized list of creditors that may be impaired or may seek
damages as a result of the proposed plan to restore the soundness of
the local public entity's financial position.
(5) Any additional information the auditor deems necessary to
complete the audit in a timely manner.
(b) Upon receipt of the analyses information described in
subdivision (a), the State Auditor shall audit the analyses and
financial position of the local public entity. The State Auditor
shall work with the local public entity to establish a deadline for
the audit work.
(c) Any audit initiated under this section shall take precedent
over any pending audit requested under subdivision (b) of Section
8546.1.
(d) If a local public entity requests an audit pursuant to this
section, the Controller shall transfer sufficient funds from the
General Fund to the State Auditor to reimburse the State Auditor for
the audit activities. The Controller shall use General Fund revenues
that are payable to the state from local public entities during the
fiscal year in which the audit is performed. Nothing in this
subdivision shall be deemed to create an additional fiscal obligation
to the local public entity.
(e) The auditor's report developed pursuant to this section shall
become public at the time of filing for bankruptcy or prior to filing
at the public entity's discretion.

SEC. 12. Section 53762.7 is added to the
Government Code , to read:
53762.7. (a) Notwithstanding Section 53760, a local public entity
may file a petition and exercise powers pursuant to applicable
federal bankruptcy laws if both of the following conditions are met:
(1) The State Auditor determines that the local public entity is
insolvent, as defined in subparagraph (C) of subdivision (32) of
Section 101 of Title 11 of the United States Code.
(2) The local public entity has been participating in a neutral
evaluation with interested parties for at least 90 days.
(b) If a local public entity files a petition and exercises powers
pursuant to applicable federal bankruptcy laws pursuant to
subdivision (a), the court shall not consider whether that filing
meets the requirements of Section 53760.

SEC. 13. Section 53762.8 is added to the
Government Code , to read:
53762.8. (a) No evidence of anything said or any admission made
for the purpose of, in the course of, or pursuant to, a neutral
evaluation is 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) No 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 is 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) All communications, negotiations, or settlement discussions 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) Neither a mediator neutral evaluator nor any other person may
submit to a court or other adjudicative body, and a court or other
adjudicative body may 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, unless 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
Chapter 9 of Title 11 of the United States Code or unless all parties
to the neutral evaluation expressly agree otherwise.
(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 provisions of this
chapter if either of the following conditions is satisfied:
(1) All persons who 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 provisions of 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 evaluator is not made inadmissible, or protected from
disclosure, by the provisions of 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. 10. SEC. 14. Section 53763 is
added to the Government Code, to read:
53763. 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) "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.
(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 the
municipality's general fund obligations.
(f) "Debtor" means a local public entity that may file for
bankruptcy under Chapter 9.
(g) "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) "Interested party" means a trustee, a committee of creditors,
a creditor, an indenture trustee, a pension fund, a bondholder, or a
union who under its collective bargaining agreements has standing to
initiate contract or debt restructuring negotiations with the
municipality.
(j) "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 (4)
(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.
(k) "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. 15. The Legislature finds and declares that
the duties of the State Auditor that arise under Section 53762.6 of
the Government Code, as proposed to be added by this act, shall be
initially funded from the State Audit Fund, pursuant to Section
8544.5 of the Government Code, which meets the requirements of
subdivision (b) of Joint Rule 37.4, and which shall be subsequently
reimbursed pursuant to subdivision (d) of Section 53762.6 of the
Government Code.

SEC. 11. SEC. 16. The Legislature
finds and declares that Sections 6 and 7 of this act, which add
Sections 53761.5 and 53762.5 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.