Bill pushes for possible municipal bankruptcies in Illinois - News - Rockford Register Star - Rockford, IL

 

SPRINGFIELD — Stressed by pension debt, other financial issues and the possibility of losing a chunk of their state aid, some Illinois cities want the option to file for bankruptcy.

They’ve found an ally in a Republican, who’s proposed legislation to allow municipalities to follow in the footsteps of Detroit and other cities in restructuring debt and paying back creditors. Opponents, however, say there are less drastic, intermediate steps.

One thing is clear, Rockford Mayor Larry Morrissey told senators this month: “If history has proven anything in this state, delay, deferral and denial are not solutions.”

Twelve states authorize cities to file Chapter 9 bankruptcy filings, according to the National Conference of State Legislatures, and another 12 grant conditional ability to file. Twenty-six states either don’t have Chapter 9 authorization or prohibit it.

Rep. Ron Sandack of Downers Grove is sponsoring legislation that would grant authority for communities to file for bankruptcy under Chapter 9 of the federal code. He says House Bill 298 is a “measure of last resort,” especially with Gov. Bruce Rauner’s proposal in next year’s budget to cut in half the local governments’ share of state income taxes by 50 percent.

“It’s just giving time and space to do things right.”

But not even wealthy towns are immune to costs associated with unsustainable pensions and personal and long-term debt, which can make bankruptcy seem like a viable option. Laurence Msall, president of the Civic Federation, a Chicago-based, nonpartisan government research organization, and other critics recommend establishing an authority that can work with the local government before a bankruptcy judge would consider approving a filing.

“Bankruptcy is a very dangerous place for us to be heading,” he said.

Municipal bankruptcies are rare, NCSL data shows. Of 37 local government filings since 2010, eight are cities; the majority were filed by utilities and special districts.

Detroit filed for the nation’s largest municipal bankruptcy in July 2013, looking to restructure $12 billion of debt. Michigan allows Chapter 9 filing when certain conditions are met, and Gov. Rick Synder appointed an emergency manager to handle Detroit’s finances and negotiations with creditors. Late last year, a federal judge approved a plan in which Detroit was able to erase or restructure $7 billion of its debt.

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