02/18/2000 01:12 PM House JUD

HB 233 - MUNICIPAL BANKRUPTCY                                                                                                   
                                                                                                                                
REPRESENTATIVE GREEN brought before the committee HOUSE BILL NO.                                                                
233, "An Act granting authority to each municipality to be a debtor                                                             
under 11 U.S.C. (Federal Bankruptcy Act) and to take any                                                                        
appropriate action authorized by federal law relating to bankruptcy                                                             
of a municipality."  [Before the committee was CSHB 233(CRA).]                                                                  
                                                                                                                                
Number 0646                                                                                                                     
                                                                                                                                
JONATHON LACK, Legislative Assistant to Representative Andrew                                                                   
Halcro, Alaska State Legislature, came forward to explain HB 233.                                                               
He noted that Representative Halcro was a co-chairman at the time                                                               
of the House Community and Regional Affairs (CRA) Standing                                                                      
Committee, which had sponsored the bill the previous year.                                                                      
Representative Halcro had agreed to continue carrying the bill                                                                  
although he is no longer co-chairman of that committee.                                                                         
                                                                                                                                
MR. LACK informed members that in 1994 the U.S. Congress changed                                                                
the federal bankruptcy code to require states to give local                                                                     
governments specific authority to seek protection under Chapter 9                                                               
of the federal bankruptcy code.  Although most states have granted                                                              
this ability, Alaska has not.  This bill will bring Alaska into                                                                 
compliance with those 1994 changes.                                                                                             
                                                                                                                                
MR. LACK pointed out that smaller communities are often in a                                                                    
financially tenuous position, meeting expenses on a month-to-month                                                              
basis.  Federal bankruptcy protection might be required by a local                                                              
community government when there has been mismanagement, for                                                                     
example, or when an accident occurs in a smaller community that is                                                              
under-insured.  In Alaska, many smaller communities have a "strong                                                              
city manager" form of government.  The desire is to not create a                                                                
situation where creditors would come in and start "cherry-picking"                                                              
community assets - for example, a fire trucks or ambulance -                                                                    
thereby leaving a community without emergency care or whatever may                                                              
be necessary.  Therefore, HB 233 would allow a community to go into                                                             
federal bankruptcy court, seek protection and reorganize its debts.                                                             
                                                                                                                                
Number 0732                                                                                                                     
                                                                                                                                
REPRESENTATIVE GREEN requested a brief overview of the protections                                                              
afforded by Chapter 9.                                                                                                          
                                                                                                                                
MR. LACK explained that Chapter 9 is generally available for                                                                    
individuals to reorganize their debts.  For municipalities and                                                                  
local governments, the reorganization does not, in most cases,                                                                  
allow a local government to extinguish its debts.  There are four                                                               
options that a local government would have under Chapter 9 to                                                                   
reorganize its debts and basically force creditors to come to the                                                               
table to work out a payment plan or reduce the debt.  Generally,                                                                
however, it doesn't allow the discharge of debts unless creditors                                                               
are participating in bad faith negotiations in front of the                                                                     
bankruptcy court.                                                                                                               
                                                                                                                                
Number 0783                                                                                                                     
                                                                                                                                
REPRESENTATIVE ROKEBERG inquired whether the congressional action                                                               
had resulted from the Orange County "fiscal debacle."                                                                           
                                                                                                                                
MR. LACK answered that ironically the change in federal law                                                                     
occurred in 1994 and then Orange County went bankrupt.  The federal                                                             
court told Orange County that California hadn't provided specific                                                               
authority, however.  In order for Orange County to seek bankruptcy                                                              
protection, California had to go back in and do what HB 233 does.                                                               
It exemplifies why HB 233 needs to be passed.                                                                                   
                                                                                                                                
Number 0825                                                                                                                     
                                                                                                                                
REPRESENTATIVE GREEN noted that apparently there were no more                                                                   
testifiers on HB 233; he closed public testimony and indicated                                                                  
there was no quorum present.  [HB 233 was held over.]