"San Diego is very far from even being close to insolvent." Joined by Mayor Jerry Sanders, Jay Goldstone, chief operating officer for the city of San Diego, assures residents and creditors that the city has no plans to file Chapter 9 municipal bankruptcy.

Nevertheless, the administration has expressed strong opposition to a California Senate bill that would limit the right of municipalities to declare insolvency -- opposition shared by the League of California Cities and at least 145 of its constituent communities.

Assembly Bill 155, which passed the Senate Local Government Committee along party lines on April 19, would require cities and local districts to obtain permission from the California Debt and Investment Advisory Commission before filing for bankruptcy. The commission could have authority to force cost-cutting measures on municipalities and municipal agencies before they could file. Overall, the goal of the bill is to reduce the number of municipal bankruptcies in California.

San Diego Democratic senator Christine Kehoe, a member of the committee, voted for the bill. Noting that 38 other states either have constraints in place against municipal bankruptcy or bar it altogether, she argued that the state has an obligation to limit bankruptcies because of its role helping local governments provide services.

Goldstone, himself a member of the California Debt and Investment Advisory Commission, opposes the additional oversight authority for the commission. "It's a bad idea," said Goldstone in an interview with the Union Tribune. "The state should not be dictating whether a local government does or does not qualify for bankruptcy. ... That's what the courts should be for."

Goldstone, the Sanders administration and other critics say the bill is an undue limit on local authority and an increase in bureaucratic red tape at a time when what is needed is less.

On the contrary, argue proponents of the bill, who include several public employee unions. The new oversight is particularly important during harsh economic times to ensure that local governments and districts do not simply use bankruptcy to cancel contracts with employees. Oversight by the commission would ensure that all alternatives were considered and austerity measures put in place before employee contracts could be annulled.

Related Resources

"Bill to check city bankruptcies advances," (San Diego Union Tribune, April 20, 2010)