State Senate bill to allow cities to file bankruptcy

Thirty-four Gary firefighters were recently laid off because of severe budget deficits, and it doesn’t look like Gary will be able to improve the situation alone.
 
For the third and final time, the municipal government of Gary asked Indiana’s Distressed Unit Appeals Board for a state bailout Friday.

Tax bailouts from the state have helped Gary out of debt in the past, but the property tax caps added to the state constitution in November will not allow for future
exemptions.

But there may still be hope for Gary and other cities in financial trouble.

Governor Mitch Daniels has given his support for Senate Bill 105, a bill that will allow municipal governments to file for Chapter 9 bankruptcy protection under the United States Bankruptcy Code.

The bill, sponsored by Sen. Ed Charbonneau, R-8th  District, would restructure Indiana’s Distressed Unit Appeals Board, which Gary has previously relied on for debt and budget relief.

The proposal would give the board the power to appoint an emergency manager to help municipal taxing units and offer local governments an option to declare bankruptcy.

Under the measure, local governments that have debt that exceeds 30 percent of annual revenues and is more than 90 days past due can ask the Indiana Distressed Unit Appeals Board to appoint an emergency manager to manage the debt, according to information posted on the Indiana General Assembly’s website.

This authority includes the power to adjust the budget, renegotiate labor contracts and approve or veto contracts, expenses, loans and hiring.

Doug Masson, an attorney in Lafayette, Ind., who has worked for Legislative Services Agency in the Indiana General Assembly, is apprehensive about the bill.

“To me, this thing doesn’t at all strike the right balances,” Masson said. “You have a small group of state officials — without anything in the way of input from local officials, even as consultants — who can take over a political subdivision without much second
guessing.“

Masson said that under the bill, the state’s appointee could possibly work against local interests.

Gary’s Mayor Rudy Clay said he believes his town will not have to worry about a political takeover because of the city’s previous appeals to the Indiana Distressed Unit Appeals Board.

“We’ve been able to streamline city government,” Clay said Thursday at a press conference. “I think that’s great. I think that in 2012, we will be one of the few cities that will be prepared for property tax caps because we’re one of the few cities creative enough to go to the board and get them.”

Monroe County Auditor Amy Gerstman said Bloomington will also be prepared.

“In general, Monroe County is in excellent shape and has successfully weathered the recession,” Gerstman said. “Indiana University is such a strong employer, and there are other companies that are also strong employers.”

While Gerstman said she understands that other areas around the state are struggling and may need to resort to bankruptcy, she said Bloomington will not seek such an option.

“Our assessed property values are strong, and we’re not hitting the tax caps,” Gerstman said.

Gerstman said Bloomington’s general fund is at $14 million, which is half of the proposed budget.

“I don’t see Monroe County or the City of Bloomington having any intention of using the bill,” Gerstman said.