Testimony Heard on Municipal Bankruptcy Bill

Experts in the area of municipal bankruptcy gathered before the House Judiciary-Civil Law Committee in Chicago last Friday to discuss State Representative Ron Sandack’s (R-Downers Grove) HB298, which would allow Illinois municipalities to seek bankruptcy protections through Chapter 9 of the Federal Bankruptcy Code. Chapter 9 allows for bankruptcy protection, but includes a provision that requires municipalities to gain state authorization as part of a filing. Currently Illinois statutes do not allow for such authorization to be given.

“This marked the beginning of an important and comprehensive discussion about whether or not the General Assembly should allow desolate and debt-ridden municipalities in Illinois to have bankruptcy protection as a ‘last resort’ tool for stabilizing and reorganizing financial affairs,” said Sandack. “We heard compelling testimony from both sides of the argument, and I look forward to the conversation continuing in the coming weeks and months.”

Sandack pointed out the significant differences between municipal bankruptcies and those filed by individuals or businesses. “Everyone needs to realize that bankruptcy protection for municipalities is much different than the types of filings that are available to citizens,” Sandack said. “One primary difference is that through the process of a municipal bankruptcy, assets cannot be seized, or sold, or taken away in any fashion. The process would simply provide a mechanism through which cities could continue to provide basic and necessary services while being fair to all creditors.”

According to Sandack, municipalities that wish to seek bankruptcy protection must first prove they are insolvent and not able to pay their bills, that they have attempted to restructure debt, and that they have acted in good faith with their creditors.

In addition to hearing from experts in the field of municipal bankruptcy, committee members also heard testimony from experts in the field of finance, from Rockford Mayor Larry Morrissey and Civic Federation President Laurence Msall, and from representatives of police and fire department unions. Through provided testimony, a recommendation emerged regarding the creation of an intermediary or “gatekeeping” authority which would work with municipalities with hopes of preventing an ultimate need for a bankruptcy filing.

“I am very open to the idea of a panel that would work with municipalities and try to help them regain financial solvency, because obviously bankruptcy would be a measure of last resort,” said Sandack. “By sponsoring this bill I am not encouraging municipalities to abandon efforts to regain financial stability on their own. The bill would simply provide municipalities with an additional tool to help them get their financial affairs in order.”

Governor Bruce Rauner has expressed his support of the bill.