New law alters local-government bankruptcy process

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Local governments will face more hurdles to declaring bankruptcy under a bill signed by Gov. Jerry Brown on Sunday.

Under the new law, written by Assemblyman Bob Wieckowski (D-Fremont), cities would have undergo an evaluation from a neutral third party or declare a fiscal emergency, stating it will default on its bills within 60 days before it can claim insolvency.

“This bill does not prevent a municipality from declaring bankruptcy or even throw roadblocks in its path,” Brown wrote in his signing message. “The goal is to find alternative, less drastic solutions whenever possible.”

The issue has pitted cities against organized labor in a pitched Capitol battle since 2008. That’s when Vallejo filed for Chapter 9 protection, seeking to free itself from existing contracts with firefighter unions and others.

Dozens of cities have threatened to file for similar protections, facing declining revenues and increased obligations to workers. Labor unions turned to state lawmakers to make it harder to void those union contracts.

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-- Anthony York in Sacramento