Should Illinois Let Its Cities Go Bankrupt?
Illinois legislators are considering whether local governments should be allowed to declare bankruptcy. Members of the Illinois House heard from dueling experts Tuesday.
It’s rare for cities and towns to declare what’s known as a Chapter 9 bankruptcy.
William Brandt, a bankruptcy consultant, says when it does happen, it's really just an “abrogation of political will” by elected officials.
“If you can’t make the tough decisions, you file a Chapter 9, and you allow a judge to administer the pain to a variety of people," Brandt says. "But that’s all you can do is to allow the judge to administer pain.”
Brandt says the Illinois proposal would put the brunt of that pain on unionized workers and pensioners.
On the other side of the debate, Brad Erens, a lawyer who worked on Detroit’s bankruptcy, says recent stock market turbulence raises the possibility that the U.S. could be heading for another recession. And that would lead to a shortfall in tax collections, putting a squeeze on cash-strapped governments.
"It will be politically unpalatable to raise taxes in that kind of environment," Erens says. "Presumably we’ll see an increase in unemployment in the state, and I think that is not the time that the state should be taxing its citizens."
Erens told members of a House committee that when governments cannot pay their debts, a bankruptcy judge can make the hard choices that politicians will not.
Rep. Ron Sandack, a Republican from Downers Grove, is sponsoring municipal bankruptcy legislation. He says it would be a last resort, and that the main idea behind the legislation is to give mayors more leverage for when they’re negotiating labor contracts.