It has been reported that $20 billion is the combined shortfall that cities across the country will face this year. Amidst great budget woes, efforts are playing out in several states to approve legislation that would require a state to intervene in order to help a municipality avoid bankruptcy. In Indiana, state Senator Ed Charbonneau has introduced such legislation so that cash- strapped cities receive support. Commenting on the bill, Charbonneau stated that “We’re putting a process in place with the intent of avoiding the need for bankruptcy. The whole purpose of it is to try to get fiscal help to distressed local units of government so they can correct their situation before any need for bankruptcy would arise.” Bloomberg News points out that states like Indiana and California are considering legislation in the aftermath of the 2008 bankruptcy in the city of Vallejo, which has led to an onslaught of legal costs, layoffs, and continued fiscal issues. Bloomberg reports:
“In Michigan, Governor Rick Snyder, a Republican, signed a law last month empowering a state-appointed emergency manager to renegotiate a city’s contracts, sell assets and set minimal staffing levels. The Michigan managers will develop a financial and operating plan for a distressed local government that includes meeting scheduled debt service on all bonds, notes and municipal securities, making pension-fund contributions and changing, rejecting, ending and renegotiating contracts. The bills aim to protect states from the harm to their credit ratings that could result from a municipal bankruptcy, increasing their borrowing costs, said James Spiotto of the Chicago-based law firm Chapman and Cutler LLP.”
The legislation that has been introduced in Indiana would also require the appointment of an emergency manager who would wield great power over the city’s operations and finances, such as pay cuts, renegotiating labor contracts, and suspending salaries. Legislation in California would require mediation to take place in order to see if contracts can be renegotiated before a city can file for bankruptcy.
Back in March we relayed info on our sister site CA City News about the imposition of financial martial law in Michigan, which meant state auditors would be able to void municipalities' union contracts and even dissolve local jurisdictions. For a refresher, see here.