California may bar city bankruptcies

By Aaron Smith, CNNMoney.com staff writer


NEW YORK (CNNMoney.com) -- A bill that clamps down on municipal bankruptcy filings is headed for Gov. Schwarzenegger's desk, which is bad news for Los Angeles and other cash-strapped California cities.

It the governor signs Assembly Bill 155, it would place a hurdle in the path of filing for Chapter 9 municipal bankruptcy. The bill stipulates that a city may only file for bankruptcy with the approval of the California Debt Investment Advisory Commission, which provides information on debt to public agencies.

"California's taxpayers who rely on public safety, senior, park and library services, as well as those who own and operate businesses in our communities, deserve every effort that state and local government can make to avoid the long-term devastation of bankruptcy," the bill says.

In particular, the bill says it intends to protect retirement pensions and health benefits for public employees, which would be disrupted and renegotiated in the wake of bankruptcy.

This could have a direct impact on the state's largest city, Los Angeles, which is facing a huge budget shortfall.

L.A. is projecting that city revenues will fall 11.2% short of projected expenses in the current fiscal year, which adds up to a deficit of $492 million, according to Pew Charitable Trusts, a non-profit research organization on public policy. The city had a shortfall of 12.1% the prior year.

The city's former mayor, Richard Riordan, is calling for bankruptcy as the current mayor, Antonio Villaraigosa, is proposing deep cuts to city payrolls, according to news reports. Riordan and Villaraigosa were not immediately available for comment to CNNMoney.com.

Villaraigosa said in March that he would have to cut more than 3,000 city jobs, according to Pew. Instead, he agreed with the City Council to lay off between 761 and 1,761 positions - unless the unions accept pay cuts and unpaid furloughs.

The city of Vallejo, located north of San Francisco, already filed for bankruptcy in 2008. If Schwarzenegger approves the bill, it would impact the ability of other cities to file for Chapter 9.

Of course, California isn't the only state with cities in fiscal crisis. According to Pew, Chicago is faced with a projected budget shortfall of 16.3%, while Kansas City and Phoenix, each have shortfalls of 12.5%. New York City has a projected deficit of $4.9 billion, or 8.2% of expenses.  To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Index Last Change % Change
Dow 17,070.39 -9.18 -0.05%
Nasdaq 4,573.56 15.86 0.35%
S&P 500 2,000.47 3.73 0.19%
Treasuries 2.33 -0.00 -0.13%
Data as of 2:27pm ET
Company Price Change % Change
Bank of America Corp... 16.07 0.06 0.37%
Apple Inc 102.55 0.30 0.29%
Intel Corp 34.90 0.25 0.72%
Facebook Inc 74.76 0.91 1.23%
General Electric Co 25.93 -0.08 -0.31%
Data as of 2:12pm ET

Sections

Tesla shares hit a new all-time high Friday after the company announced plans to build 400 charging points in China. More

Gas prices are falling to nearly $3 a gallon in some parts of South Carolina, and that will soon be common in much of the country. More

Netflix told the FCC that its speed on the Comcast network became so slow that customers began dropping their service. More

Whether you've got wanderlust or an airline grievance, here are some apps to pack onto your phone. More

Five CNNMoney readers share stories about saving that you can learn from: What they would do differently if they had another chance. More

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.