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A years-long and often sharp political duel over whether the state should control local government bankruptcies was resolved Wednesday with an apparent win by local officials over unions.

The Senate Governance and Finance Committee, by a 7-2 vote, approved a much revised bill, Assembly Bill 506 by Assemblyman Bob Wieckowski, D-Fremont.

As now written, AB 506 would allow a city or other local government to declare bankruptcy without state permission if it goes through a "neutral evaluation process" of its finances or declares a "fiscal emergency" after a public hearing.

With that change, negotiated in private between local government officials and public employee unions, the League of California Cities and other groups withdrew their opposition.

Prior versions of the legislation, backed by unions of firefighters and other local workers, would have required permission from a state agency before bankruptcy could be declared.

The clash stemmed from the bankruptcy of Vallejo three years ago and fears among union leaders that with the state's economic woes, more cities would seek bankruptcy protection and abrogate their labor contracts. But no other cities have sought bankruptcy since then, although several insolvencies have been threatened, and Vallejo emerged from bankruptcy a month ago, having reduced its labor and pension costs it blamed for insolvency.

Wednesday's committee vote sent the revised measure to the floors of both houses for final votes prior to the legislative session's scheduled adjournment on Friday.


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