Law
6:09 pm
Thu July 25, 2013

Five cities that were denied Chapter 9 protection in the past

Everyone is waiting to see how Detroit's historic bankruptcy filing plays out in court. Though Detroit is the largest city to ever file for bankruptcy, other cities have done it.

But, while some have been granted protection under Chapter 9, other cities were denied protection, or never even got to court.

More specifically: Bridgeport, Connecticut; Hamtramck, Michigan; Washington Park, Illinois; Boise County, Idaho and Harrisburg, Pennsylvania. 

There are basically two reasons that these cities weren't granted protection: the federal bankruptcy court deemed that they had enough money to cover their debt for the fiscal year, or that they simply didn't have the authority to file for Chapter 9.

Here's a breakdown of what happened to them, and why the court ruled the way it did:

Cities that didn't have the authority to file were Hamtramck, Washington Park, and Harrisburg.

1. The city of Hamtramck, Michigan filed in 2010 for Chapter 9 bankruptcy.

According to Terry Stanton, who is the Public Officer for Michigan's Treasury Department, Governor Snyder didn't grant the request because Hamtramck didn't have an emergency manager at the time. Public Act 436 requires an emergency manager to be in place when a city files for bankruptcy.

2. The city of Washington Park, Illinois tried filing in 2010, too. 

In this case, the city said that they only had $50,000 in assets and that they owed more than $1 million. U.S. Bankruptcy Judge Pamela Peppers ruled that Washington Park didn't qualify because an Illinois state-empowered organization, a government officer, or a state law hadn't authorized the filing. 

3. The City Council in Harrisburg, Pennsylvania attempted to file in 2011.

The council's decision was opposed by the city's mayor. The council filed because the city had around $400 million in debt due to a broken trash incinerator.

In this situation, the city council said that Harrisburg's debt was four times as much as its annual budget. The council didn't approve of the mayor's financial plan to get the city out of debt, and chose to file for Chapter 9 instead. Ultimately, the filing wasn't accepted because not all municipal groups supported the filing (a.k.a. the mayor). 

There are also two cities that were denied protection for a different reason -- the federal bankruptcy court ruled that they had enough money to pay their debts.

4. Boise County, Idaho, 2011.

Boise County was sued, and couldn't pay its legal fees.

The county had to pay $4 million as ruled in the judgment and $1.4 million in legal fees. The county said that it had a $9.4 million-a-year operating budget. It didn't have any outstanding debt, and the court ruled that the county had sufficient funds to continue operations. 

5. Bridgeport, Connecticut, 1991.

Bridgeport said that it couldn't provide basic services to residents, like public safety, sanitation, and other general welfare services. 

First, the court said that the city's eligibility was contingent upon its prospective analysis, not  its retrospective analysis.

The city had argued that it probably wouldn't be able to pay off its debt in coming years, but the state said that there was too much speculation in future projections to grant the city protection under Chapter 9.  

Basically, the city had enough cash flow to pay its bills as they received them in 1991, but it didn't think it could pay them in the future.

Next, the court ruled that the city had enough money to pay its debt for the current (1991) fiscal year. 

Essentially, the court said that Bridgeport could pay its current debts and therefore was not insolvent.

-- Lucy Perkins, Michigan Radio Newsroom

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