Illinois Lawmaker Proposes Allowing Municipal Bankruptcy

Published April 7, 2015

Responding to the growing problem of municipal pension liabilities, an Illinois lawmaker is proposing a bill to allow municipalities in the state to declare bankruptcy and renegotiate their liabilities.

The bill, sponsored by state Rep. Ron Sandack (R-Downers Grove), would authorize cities to declare bankruptcy under Chapter 9 of the United States Code, as a measure of last resort.

Restructuring Debt

Illinois Policy Institute Vice President of Policy Ted Dabrowski says allowing cities to declare bankruptcy would allow troubled municipalities to solve their debt crisis.

“The reason that there is a need for potential bankruptcy is that if the cities don’t have the ability to restructure their debt, it may be that some of these pension funds go belly-up,” he said. “And that would be really bad for the policemen and firemen, and those who work hard to protect us.”

Dabrowski says some cities’ public pension funds in Illinois are in danger of going under.

“If you look at Springfield, the capital of Illinois, they’ve already cut a lot of police since the Great Recession by 15 percent. They’ve closed three library branches, they had to raise a special tax to fix their sidewalks,” he said. “Same thing for cities like Peoria: they’ve had to raise new taxes and new fees in order to pay for pensions, and it’s out of control.

‘It’s Going to Be Really Bad’

“The taxpayers are paying more and getting less services and bankruptcy would help the pensioners who are themselves getting hurt. So we have to do major reforms like this, that might include bankruptcy,” Dabrowski said.

Dabrowski says cities need to take significant steps to correct the problem.

“But things now are getting worse and worse, until there are some pension funds in Illinois, at the local level, which are only 20-, 30-, or 40-percent funded. And if something is not done in the near future it’s going to be really bad for the very people that the unions, and in theory, the Constitution are trying to protect.”

‘The Best Option Out There’

Truth in Accounting Director of Research Bill Bergman says municipal bankruptcy may be the only solution for some Illinois cities.

“I’m afraid bankruptcy looks like the best option out there, right now, and perhaps even for the City of Chicago,” Bergman said.

“It is a sad state of affairs that we have allowed ourselves to get into,” he said. “Many citizens justly feel that is isn’t their own fault, that the system has been rigged for this nightmare by unaccountable forces beyond their control.”

Warner Todd Huston ([email protected]) writes from Streamwood, IL.