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Live Video: Municipal bankruptcy hearing

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* We’re coming a little late to this, but you can watch this morning’s legislative hearing on Rep. Ron Sandack’s municipal bankruptcy bill right here, via BlueRoomStream.com…

The legislation is here.

posted by Rich Miller
Friday, Mar 20, 15 @ 9:38 am

Comments

Hold It Right There Sandack!

There’s nothing in the full text of the bill about secured positions, or any protections of any kind, for pensions, bonds, or anything else — like you said there was.

No matter. As Wordslinger said, once you open that door, it’s all up to the judge anyway.

Comment by walker Friday, Mar 20, 15 @ 9:47 am
Are any municipalities asking for this? Are there proponents?

Comment by Rasselas Friday, Mar 20, 15 @ 9:52 am
“Who” is going to speak?

“Who” is going to stop the Owl Sandack?

“Who” is there to make sure Sandack does what Uihline and Rauner want?

Sandack is real good at “who”…and Sandack is real good at doing what Rauner wants.

“Who” knows, Ron Sandack might surprise us, but fear is a great motivator.

“Who” misses the former Ron Sandack? Everyone but Rauner, Uihline, and sadly, the safe Owl himself, Ron Sandack. Pathetic.

Mayor Ron Sandack must be sad at the Owl too.

Comment by Oswego Willy Friday, Mar 20, 15 @ 9:55 am
Darn, I lost track of time and missed the opening of the hearing. Wonder how Owl Sandack presented it.

Comment by Norseman Friday, Mar 20, 15 @ 10:04 am
What if ILGOP returned to their basic solid conservative principles and demand that governments remain accountable for their tax laws, budgets, employment benefits, pensions and other decisions, instead of permitting them to escape responsibilities by granting them the option to declare bankruptcy?

Anyone still in ILGOP doing that?

Comment by VanillaMan Friday, Mar 20, 15 @ 10:05 am
This topic is complicated. One brief introduction:

http://apps.americanbar.org/buslaw/blt/content/2011/06/article-kevane2.shtml

I stand by my observation made a while back - a state law (such as HB0298) that empowers or facilitates the impairment of pension obligations might itself violate the IL Constitution.

The IL Supreme Court cannot block the actions of a federal bankruptcy judge but it can strike down a law such as HB 0298 and that takes away federal jurisdiction.

Comment by Con Law 401 Friday, Mar 20, 15 @ 10:09 am
Walk, it’s a little curious that Sandack could misrepresent his bill the way he did to Rich the other day.

I guess he didnt read his bill. Funny. Those two sentences ain’t exactly a heavy lift.

Part of the union-busting campaign. Give back at the negotiating table, or we’ll see if we can find a friendly judge to tear up your contract.

Does anyone really think a bankruptcy option will make local governments more fiscally responsible? That makes no sense.

Comment by Wordslinger Friday, Mar 20, 15 @ 10:39 am
Vman, your proposal forgets that the central tenet of the gop at every level of govt is taxes to be brought as low as possible no matter what.

Municipal bankruptcy facilitates lower tax burdens on the rauners of the world so it is right.

Comment by hisgirlfriday Friday, Mar 20, 15 @ 10:39 am
So, it is ok to skip out on your responsibilities? If you bury yourself enough? Very courageous proposed legislation- average citizen accountable, government- not accountable.

Comment by JS Mill Friday, Mar 20, 15 @ 10:57 am
“This topic is complicated.”
—————

Vast Understatement, IMO. We’ll see how it plays out. The lineup of supporters/opponents is really going to get interesting here.

Everybody thinks the unions are going to be the most opposed. Probably, but not sure that will be the case. Might be the entire tax exempt issuers (bond folks).

Realize, you have a local government able to file for bankruptcy, that means ALL of their bonded indebtedness is now up for review. Everything just got put in play in bankruptcy court. That means 10 year old bond issues still being paid for get put under the microscope.

“Are any municipalities asking for this? Are there proponents?”
———————-

No. Of course Not. In the open, this bill is an orphan. Behind closed doors, it has ’supporters’ - well, kinda.

Nobody can be in favor of this openly. If a municipality is in favor, they’ll have people in their office on Monday AM wanting to check their accounting.

Down the road, well, there’s a number of local governments who are already whispering about ‘it’ (bankruptcy). Nobody wants it, but sometimes the numbers just are not going to work no matter what you do.

And it’s not just them evil Republicans - although they’ll probably get to wear the collar for it.

Comment by Judgment Day Friday, Mar 20, 15 @ 11:04 am
“Part of the union-busting campaign. Give back at the negotiating table, or we’ll see if we can find a friendly judge to tear up your contract.

Does anyone really think a bankruptcy option will make local governments more fiscally responsible? That makes no sense.”
—————–

Word, not quite right. Maybe before you file, it’s a negotiating technique. But once you actually pull the trigger and file, then you are in bankruptcy court. And there’s no such thing as a ‘friendly’ bankruptcy judge. It’s all about the reorganization plan(s) and the bankruptcy trustee.

Does bankruptcy make a unit of local government more fiscally responsible?

Answer really is: As compared to what? What was the municipality doing before they filed - probably.

http://en.wikipedia.org/wiki/Jefferson_County,_Alabama

This is one of those bills where you can deal with it now, when we still have time, or we can dump it now, and maybe decide that if we need it, we can do it later. But the problem is, later then we’ll be under pressure - and we all know how well the IL legislature performs under pressure.

Rep. Sandack may not be so willing stand up for those folks next time. Just sayin.

Comment by Judgment Day Friday, Mar 20, 15 @ 11:25 am
JudgmentDay: makin a lot of sense

Of course some are scared and talking potential BK. How else to handle less distributed funds, suspended state grants, and a promise to freeze property taxes — all pressed down from above?

Comment by walker Friday, Mar 20, 15 @ 11:31 am
So much for protecting the police and fire pensions.

Another item is interest. I had heard that in bankruptcies, interest is frozen on existing bonds. Would that apply to these units of government? Or would it wipe out the bonds altogether?

Comment by DuPage Friday, Mar 20, 15 @ 11:31 am
JD, I wasn’t clear. My point is that giving municipalities the option of bankruptcy is a disincentive to fiscal responsibility.

It’s different in fhe private sector and for individuals because risk is necessary for progress.

You don’t start or expand a business or take a chance if every move you makes mean you can lose everything and be yoked to an unpayable debt burden for the rest of your life.

Comment by Wordslinger Friday, Mar 20, 15 @ 11:35 am
Hmmm, they are on break, but somebody left a live mic. I heard a few 4-letter words going. Somebody probably will separate the voices electronically somehow, and we will hear what they are really thinking.

Comment by DuPage Friday, Mar 20, 15 @ 11:38 am
Bill probably has supporters behind the scenes. What muni would want to come out and say “we wish we could go bankrupt!” Perhaps Chicago wants it. From what I’ve read it might not even be mathmatically possible for them to meet their pension obs.

Comment by TGS Friday, Mar 20, 15 @ 12:04 pm
TGS: “I’ve read it might not even be mathmatically possible for them to meet their pension obs.” Tax increases seems like a good answer until you consider that tax hikes can be avoided by moving. Detroit’s public employee pensions were 90% funded when it declared BK but decades of excessive property tax hikes destroyed property values in the City, created a mass exodus, and kept developers and new buyers out. Services were ignored to fund debt which blighted almost the entire City. Detroit declared BK because it completely ran out of revenue to pay its bills for services and pay its debt. There was no more revenue because property values had completely collapsed.

Comment by My Little Pony Friday, Mar 20, 15 @ 12:15 pm
Tgs, that’s just spin. I don’t know where you live, but you wish you had Chicago’s property tax rates, believe me.

The city is a going concern with ways and means. Like state government, they’re just trying to wiggle out of paying back money they borrowed.

Comment by Wordslinger Friday, Mar 20, 15 @ 12:17 pm
“From what I’ve read it might not even be mathmatically possible for them to meet their pension obs.” That’s because the Rahm propaganda never includes the TIF money in any assessment.

Comment by anon Friday, Mar 20, 15 @ 12:17 pm
TIF money can be withheld from other funds for capitol improvements. Thats why the TIF was created in the first place.

Comment by TGS Friday, Mar 20, 15 @ 12:21 pm
++“Are any municipalities asking for this?++ Chicago

Comment by Mama Friday, Mar 20, 15 @ 12:23 pm
My Little Pony, your handle is perfect because you live in a fantasy world.

On this planet, life is a little more complex than that.

Comment by Wordslinger Friday, Mar 20, 15 @ 12:27 pm
If BK is approved, and the court upholds no diminishment on pensions, wouldn’t the municipal bonds and other bills be the only things that could be wiped out?

Comment by George Washington Friday, Mar 20, 15 @ 12:40 pm
George, rightly or wrongly, the principle that federal bankruptcy law trumps state pension protections has already been established by the Detroit case. As a previous poster noted, however, the Illinois SC can void any state bill that passes on the grounds that it impairs pensions, and that would prevent bankruptcy by Illinois municipalities and keep the federal courts from having jurisdiction in the first place. If you are a municipal bondholder or pensioner in Illinois, this will probably be your only hope.

Comment by Andy S. Friday, Mar 20, 15 @ 1:28 pm
I suggest folks look at the testimony of the first panel to testify, including the BK attorney from the firm of Jones Day. The testimony gives a good overview of the ch 9 municipal BK law and what a judge can or cannot do. Seems to me that the BK judge can approve a plan which may include a diminishment of pensions along with other unsecured creditors so long as it is fair and reasonable and provides for a rational basis for the the unit of local government to go forward. The government pension plans would be part of the negotiations among unsecured creditors to devise the plan, so the question of diminishment could be agreed to by the pension plans.
Also, it appears that in Illinois, a process is needed from the the legislature pre-BK for the parties to try and work things out, and, in the event of failure, the state must issue a clear permission to the BK court that a local government may file for BK.
And after that, the BK judge can deny the filing if it is found that the the local government has not done everything feasible to solve its fiscal woes.
Seems like a lot of things have to happen before any Illinois local unit can march into a federal court with a ch 9 petition.

Comment by Cook County Commoner Friday, Mar 20, 15 @ 1:35 pm
CCC, Sandack’s bill would allow municipalities to decide on their own, with no state approval, to file for bankruptcy.

Comment by Wordslinger Friday, Mar 20, 15 @ 1:51 pm
Thanks Word.

If such legislation is passed, then it wouldn’t be surprising if a local unit’s petition is bounced by the federal BK judge. The panel discussed such an event in I think it was the Harrisburg PA BK filing.I think one of the panel members observed that you just can’t hire a “single shingle” lawyer to file a ch 9 petition and expect the court to accept it.

Comment by Cook County Commoner Friday, Mar 20, 15 @ 1:57 pm
I learned a good deal from watching that video of the hearing and I want to thank Rich for posting that link. From the discussion it would appear that HB 298 needs some type of gate keeper function included in it at the minimum. The gate keeper concept is complex and the video needs to be watched to grasp the idea.

It was really shocking to learn that general obligation bonds that reference the full faith and credit of a municipal entity are not really considered secured where as specific revenue stream bonds are considered secured. As the bankruptcy lawyers commented that is not what is generally believed by the public.

Lastly all members of the committee asked very intelligent questions and there was no grandstanding which was impressive.

Comment by Rod Friday, Mar 20, 15 @ 4:08 pm
“If such legislation is passed, then it wouldn’t be surprising if a local unit’s petition is bounced by the federal BK judge. The panel discussed such an event in I think it was the Harrisburg PA BK filing.I think one of the panel members observed that you just can’t hire a “single shingle” lawyer to file a ch 9 petition and expect the court to accept it.”
——————-

You really don’t know if a bankruptcy filing would be rejected. For example, if you had a unit of local government file for bankruptcy, you would have to list all assets and debits, but also (likely, so far at least) both future revenue and expenditures, and trending data, and you better be able to back it up. It’s not something you do on the back on an envelope or on a legal pad.

One point to consider is that (if recent history in other states is a good example) is that the bankruptcy court is going to want both historical revenue and expenditure comparisons to other similar units of local government, as well as what their future projections are representing.

It’s a serious amount of work. They may want staffing trends, breakdowns of the revenue base and trends, what do you charge for services - there’s no end. This doesn’t happen all the time - but it can happen. What it comes down to is that any unit of local government filing for bankruptcy pretty much ends up working for the appointed bankruptcy trustee.

You tend to find that in the very recent cases of local government bankruptcies, folks start asking questions that have never been asked before. Hard questions.

I hate to refer to Detroit as an example, but as a reference, see the references to pension bonded indebtedness.

http://www.bondbuyer.com/news/regionalnews/detroit-like-stockton-reveals-growing-tension-between-pensions-and-bonds-1067798-1.html

Comment by Judgment Day Friday, Mar 20, 15 @ 4:12 pm
Rod @ 4:08pm =general obligation bonds that reference the full faith and credit of a municipal entity are not really considered secured where as specific revenue stream bonds are considered secured.==
I didn’t watch the video but this sounds as if Pension Obligation Bonds (dedicated revenue stream toward single obligation?) would be considered as securitized? And GO bonds for, say, water or sewer system of the municipal would not be ’securitized’?
Seems that would be an optimal way for organized labor to protect pensions, and potentially give the GA a way out of their pickle, as well as giving the State and muni’s relief without welching on their promises….
Your comments back appreciated

Comment by anonymous Friday, Mar 20, 15 @ 4:48 pm
Just finishing the video. Sandack certainly got upset when the Finance Authority guy slammed his proposal. Sandack really wants to push bankruptcy.

Comment by Norseman Friday, Mar 20, 15 @ 4:53 pm
“I didn’t watch the video but this sounds as if Pension Obligation Bonds (dedicated revenue stream toward single obligation?) would be considered as securitized? And GO bonds for, say, water or sewer system of the municipal would not be ’securitized’?”
—————–

Unlikely - at least from a viewpoint of what has happened with local government bankruptcies in other states. Most bonded indebtedness is specifically dedicated toward a specific obligation - Working cash, Pension funding, equipment purposes, stormwater, water and/or sewer systems, etc.. But if the funding comes out of governmental revenues (property taxes, sales taxes, etc.), it’s likely to be under the purview of the bankruptcy court.

Even alternate revenue bonds have come under the purview of bankruptcy court (casino/gambling revenues, etc.), and bonds funded by those sources have been reviewed (and modified) by the court. That’s the “….specific revenue stream bonds are considered secured” aspect, which is still being litigated.

As one can imagine, the bondholders in those specific cases are fairly upset.

Comment by Judgment Day Friday, Mar 20, 15 @ 5:53 pm