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Proposed Bill Would Allow Towns to Declare Backruptcy

A proposal in the state general assembly would give cities and town that are struggling to control their budgets, a dramatic last ditch option. If approved, the bill would authorize cities to file bankruptcy. 27 states currently have similar laws on the books.

According to the bill cities would have to surrender governing authority to a state appointed receiver. The distressed unit appeals board, which currently handles requests to impose property taxes higher than the caps in state law would decide whether to appoint a receiver. The action could be requested either by the city or by creditors, if the debts they’re owed are more than 30% of the city’s expected revenue.

The appointed city manager would have authority to renegotiate contracts and set budgets, including municipal employees’ salaries. Chapter 9 of the U.S. bankruptcy code covers municipal bankruptcy, but there has to be a companion state law.

Governor Daniels has said he hopes the law won’t be needed but that Indiana should have one just in case.

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