Skillicorn Seeks to Allow Cities to Go Bankrupt

A press release from State Rep. Allen Skillicorn:

Skillicorn Files Legislation to Protect Taxpayers by Allowing Debt-Ridden Municipalities to Seek Bankruptcy

SPRINGFIELD – Last week, State Representative Allen Skillicorn (R-East Dundee) filed legislation that would allow debt-ridden municipalities the ability to petition the state to file for Chapter 9 bankruptcy.

Allen Skillicorn

Through the legislation, House Bill 501, Illinois would become the 25th state to allow municipalities this option as a means to restrain runaway costs to taxpayers.

“If a municipal government becomes so debt-stricken it can’t pay its bills, taxpayers are the ones who end up suffering,” said Skilliorn.

Skillicorn said the proposal essentially follows the same bankruptcy filing process as if a municipality were going through bankruptcy like a person or business.

A municipality would have to prove before the court it cannot pay its bills.

If it can prove its delinquency, the municipality would have to file a plan according to a court-ordered schedule that divides creditors into classes and proposes treatment for each class.

Creditors would get to vote on the plan and the court would approve the plan that has been accepted and is in the best interest of the creditors.

“Although bankruptcy comes with many of its own hazards and should only be considered as a last resort, this option provides an effective path back to financial solvency for a municipality without placing the burden solely the backs of taxpayers,” said Skilliorn.

The process of petitioning the state in the legislation is designed to prevent frivolous bankruptcy filings and to ensure it is only used as a last resort.

The proposal also seeks to reassure investors against loses by placing bondholders at the front of the repayment que in the case of restructuring.

This will assure lenders and protect against excessive rate increases for future borrowing requests by municipal governments across the state.

Should House Bill 501 become law, it would provide a much needed avenue to solvency for some of Illinois’ most debt-ridden local government entities, including Chicago Public Schools.

For more information about House Bill 501, visit here.


Skillicorn Seeks to Allow Cities to Go Bankrupt — 15 Comments

  1. Add the state of Illinois to the legislation.

    We’ll need it if the Senate’s plan is approved to increase the income tax 40% to 60%!

  2. This legislation may be devastating for small business that would have little to no influence in the final approved plan.

    The small business owners are also taxpayers who would then be burdened with unpaid debt from municipalities.

    The same thing happened to small business that did work for GM before it was allowed to go bankrupt.

    The aftermath was the failure of those businesses and the loss of those jobs.

    Proceed with caution.

  3. Looks like cities that go bankrupt don’t know how to handle their money.

  4. The elected officials of any local government that takes the course of bankruptcy should be required to tender their resignation immediately for malfeasance of office.

    The people of this state have suffered bush league players playing at being politicians and forcing them into bankruptcy for too long to be accommodated.

  5. Great idea, lets allow failing municipalities to take resources from the government to work it out and then stiff the businesses they owe money to. Yes great short sighted idea.

  6. Easier to pass legislation placing the burden on small and big business than to tackle the real issue?

    The real problems are:

    1. State Constitutional public sector pension law

    2. Prevailing wage law.

    3. Lack of Right to Work law.

    To pass legislation resolving any of those items would require a government of people with a functioning brain.

    Did you know that Illinois tax law actually contains language which states it is a PRIVILEGE to operate a business in Illinois?

  7. This guy is a wack a doodle where does he come up with stuff?

    Hurting small businesses will not be a solution rather a compounding problem that will have consequences.

    Skillicorn I am sorry I ever voted for you.

    Your a bigger disappointment then I ever imagined.

  8. With due respect to Mr. Skillicorn, this legislation will provide virtually no relief to Illinois taxpayers.

    The purpose of municipal bankruptcy is to allow municipalities to adjust their debts when they can’t raise the revenue needed to pay their debts, or paying their debts would leave them with insufficient revenue to pay for critical municipal services such as police and fire protection.

    So the key focus in bankruptcy would be if granting relief would increase revenue available for such services.

    Would that work for Illinois municipalities?

    Let’s look at the facts.

    First, Illinois home rule municipalities (e.g., Chicago, Crystal Lake) have the legal authority to raise property taxes without limit for operating purposes.

    How does a city with the legal authority to increase revenue go to court and claim it doesn’t have enough revenue?

    “Yes, your honor, we COULD raise more revenue — we just don’t wanna. Please grant us relief.”

    Good luck with THAT argument in court!

    Second, almost all debt issued by municipalities is protected from municipal bankruptcy.

    Allow me to explain.

    The vast majority of Illinois municipalities’ debt is called “general obligation bonds”, and those bonds are payable from a tax levy legally segregated from the operating funds.

    In other words, reducing debt would NOT increase funds available for operating purposes, like police or fire protection.

    The second largest type of debt of Illinois municipalities is bonds issued for water and sewer systems are payable from revenues of that system and the municipalities have the legal authority to set rates for their utilities at whatever level they want.

    This means, again, that using bankruptcy to reduce utility debt would not increase funds available for regular municipal operations such as police and fire protection.

    “Yes, your honor, we filed bankruptcy claiming we didn’t have enough revenue for critical municipal services and, yes, cramming the debt won’t give us a penny for those services, but please reduce the debt anyway.”

    Good luck with that argument in court!

    Bankruptcy MIGHT provide relief from debt payable solely from the General Fund of the municipality, but there’s very little of that debt in Illinois.

    Third, revenue for pensions is also from separate, legally dedicated tax levies unlimited as to rate or amount, so asking for relief from pension payments will also be denied in bankruptcy court because

    (a) the municipality can raise the revenue needed to pay the pensions and

    (b) reducing the levy doesn’t increase money available for operating purposes.

    “Yes, your honor, we went bankrupt claiming we didn’t have enough revenue for critical municipal services such as police and fire protection, and, yes, cutting the pensions won’t increase revenue for police and fire protection, but please cut the pensions of widows and retirees anyway.”

    Good luck with THAT argument in court!

    The fact is that Illinois municipalities (and I include schools in this category) do not have a revenue problem.

    They have a SPENDING problem or, more correctly, a lack-of-guts problem.

    They COULD fix the problem — they just don’t want to.

    Bankruptcy won’t fix that problem.

  9. I believe that David McSweeney’s proposed property tax levy freeze also applies to home rule units, so that would change things some if it passes.

    I totally agree with you that Illinois has a spending problem and not a revenue problem.

  10. Joseywhales is a plant!

    Municipalities already can go bankrupt!

    “Technically, Illinois municipalities can’t file for bankruptcy, although a pair of small downstate towns actually did, but they flew far under the radar and went though the process virtually undetected.

    Still, efforts are emerging to formally sanction bankruptcy, and among the most outspoken proponents is the mayor of Rockford, the state’s third largest city and one of its most debt-ridden.”

  11. Many things that are illegal are done by local governments.

    If no one objects, they get away with it.

    Federal law forbids bankruptcy filing by municipalities without explicit state permission.

    If a couple of towns filed in Illinois and got away with it, that means no one went to court to object.

  12. To RickteyRicardo:

    Thank you for your comments and especially for the link. I followed the link and I note the article doesn’t list which Illinois municipalities have filed for bankruptcy.

    I did more research and have been unable to come up with the names of the two municipalities.

    I even called the BGA to speak with the authors; neither of them works there anymore.

    In my research I could only find one Illinois municipality that filed for bankruptcy: Washington Park in July 2009.

    That case was rejected by the judge, who stated there was no Illinois state law enabling a municipality to file a Chapter 9 bankruptcy petition.

  13. Add this to the infinite list of why people are abandoning Illinois.

    If you own property or have a job you’re gonna be prey to never ending taxes,
    there is NO escaping it.

  14. To Allen Skillicorn:

    Illinois is fortunate to have the foremost authority in the nation on municipal bankruptcy right in Chicago: James Spiotto. Jim retired from Chapman and Cutler a few years ago, but still maintains an office there.

    If you wish to file a bill permitting municipalities (including school districts, etc.) to file for bankruptcy, you might talk to him.

    He’s the best.

  15. Anything limiting Home Rule takes a 3/5 vote, I think.

    (It’s in the State Constitution.)

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