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1/24/2011 9:34:00 AM
'Municipal bankruptcy bill' not about Gary, author says

Jon Seidel, Post-Tribune Staff Writer

People in Gary are pretty worried about Senate Bill 105. That's the bill by Sen. Ed Charbonneau labeled a "municipal bankruptcy bill" early in this year's legislative session. Charbonneau says that label is unfortunate, because the whole point of his bill is to prevent local governments from going bankrupt.

But it does create a path to municipal bankruptcy court for Hoosier governments that doesn't exist now.

The general sentiment at the Statehouse is that the bill was filed this year because Gary's money problems are coming to a head. Charbonneau says that's not the case. But Gary is in the midst of its third petition to the Indiana Distressed Unit Appeals Board, a body that helps by raising local tax caps.

The DUAB can't do that next year because the caps were voted into the state constitution, and it's not clear if the region's largest city can survive on its own.

So Charbonneau's bill would reform the DUAB. Financially troubled governments would petition the board if they can't pay their bills. If the new DUAB decides the government is distressed under a set of pre-established guidelines, the DUAB would appoint an emergency manager to help straighten out its financial problems.

That resolution could include a Chapter 9 bankruptcy filing, but Charbonneau says the point is to try and avoid that fate.

Politicians in Gary say the bill amounts to a state takeover of their city.

Tony Walker, an attorney running for City Council, said in an open letter to Charbonneau this week "your bill would supplant the business judgment of local folks with a state appointee who would unilaterally decide what services residents of a distressed political subdivision are entitled to."

Again, Charbonneau has said his bill is being mischaracterized. Ever since he filed it in December, he's said it's not aimed at Gary.

"I think it's certainly a possibility that Gary wouldn't even be the first one," Charbonneau said.

The senator declined to say who might file earlier, though. Gary is the only city in all of Indiana petitioning for DUAB relief, so it naturally comes to mind.

Still, others could one day find themselves before the DUAB. Lawmakers and lobbyists say that means everyone in the state needs to pay attention to this bill.

"There probably could be, or would be, another local unit or some political subdivision that would be in this kind of crisis," Rhonda Cook, director of government affairs for the Indiana Association of Cities and Towns, said. "It's very possible."

When the DUAB first started accepting petitions in late 2008, one other Hoosier town flirted with the idea of the DUAB process.

Monroe City in southern Indiana sent an application for DUAB relief. It was told it didn't meet the criteria of a "distressed unit." In other words, Indiana's property tax caps didn't cut off at least 5 percent of its revenue. So Monroe City withdrew its petition.

Bill Sampson, Monroe City's town board manager, said his small town has its "head above water right now." He also said he didn't know Senate Bill 105 existed.

"I might look into it," Sampson said. "I really hadn't paid any attention to it."

Sampson's description could apply to many Hoosier cities and towns that say they're barely getting by. But it's not clear if there are any governments that would succumb to bankruptcy before Gary.

Auditors at the Indiana State Board of Accounts have, for years, questioned Gary's ability to continue as a going concern in annual reports. Last year, Lake Station got a similar comment in its audit.

"When I read that in the paper I was absolutely beside myself," Lake Station Mayor Keith Soderquist said.

The mayor said auditors never made such a comment during the exit interview in his office. Meanwhile, he said, Lake Station cut its budget a third and is living within its means.

Soderquist said he's not really watching Senate Bill 105.

"We will be absolutely fine," he said.

Most people, including Soderquist, said they understand the reasoning behind the bill. Indiana needs a mechanism in place in case a local government goes belly-up.

Municipal bankruptcy is governed by federal law, but it requires an authorizing statute at the state level that doesn't currently exist in Indiana.

But they also say the General Assembly must be careful in how it goes about passing such a law. Cook said Gary's the problem everyone knows about today.

Others may exist, but she said local leaders would probably be reluctant to admit they're considering bankruptcy for political reasons.

"That doesn't show good leadership," Cook said. "Maybe they wouldn't want to outrightly disclose it."

Much left to be discussed

Even if no government exists today with similar problems to Gary, a new problem could develop years from now. If Senate Bill 105 is on the books, that will be the remedy. That, Cook said, is why all Hoosier cities and towns should be watching.

"I think even those financially healthy communities are looking at it," Cook said.

There's also some concern the bill's passage would trouble investors who rely on Indiana's lack of the municipal bankruptcy option.

"Would that mean higher interest rates?" Cook said.

No one knows for sure, she said. The Senate's judiciary committee gave the bill a hearing earlier this month. Questions dominated the meeting, with few answers to resolve them.

Charbonneau couldn't say how an emergency manager would be paid, and he couldn't say whether his bill would affect Gary's current petition before the DUAB. As written, the bill is effective "upon passage."

A second hearing has been set for 8 a.m. (CST) Wednesday at the Statehouse. Charbonneau said changes will be made to the bill, but he wouldn't give any sneak previews.

"I'm very optimistic that we'll have something that will alleviate most people's concerns," Charbonneau said.

Related Stories:
• Bankruptcy bill could impose 'tough love' on cities, schools
• Questions remain on 'bankruptcy' bill after Indiana Senate hearing
• OPINION: Hoosier economic development endangered
• EDITORIAL: Gary officials should stop passing bucks
• City Council ripped as Gary seeks tax relief from state
• Indiana Senate panel approves local government bankruptcy prevention bill
• Powers of emergency manager defined in bankruptcy bill

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