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.]