Lawmakers in Hillview, Kentucky are declaring the city bankrupt after losing a land dispute with a local company.
In 2002, government officials agreed to an eventual sale of 40 acres of city-owned land to the company Truck America Training LLC, but they later backed out of the land deal. The company sued the city, winning a $15 million legal judgement.
The city government receives about $3 million in annual revenue, prompting lawmakers to sue for a Chapter 9 bankruptcy declaration.
Not Like Detroit
Eric Scorsone, an economics professor at Michigan State University, says Hillview’s bankruptcy declaration is different from other recent municipal bankruptcies.
“I think it points to the fact municipal bankruptcies are each kind of unique in many ways,” Scorsone said. “This is quite different from what’s going on in Detroit or Puerto Rico. Maybe, in some ways, this is what we’ve seen in the past more typically, where a single event essentially causes it.”
Scorsone says creditors will argue the city should first try to put the burden on taxpayers.
“I know that the other side, the creditors’ side, can argue the city probably doesn’t need to be in bankruptcy,” Scorsone said. “Getting into the bankruptcy process, you can file, but then you have to go through an eligibility trial, and I think the arguments will be, ‘They don’t need to be here. They can raise taxes, [and] they can do other things to pay this off.’ And that will probably be the key part of it: whether the judge will agree with those arguments, whether the city has other options besides bankruptcy.”
Making Better Decisions
Jim Waters, president of the Bluegrass Institute, says even when lawmakers have made bad decisions in the past, good decisions going forward have proven to help reduce taxpayers’ pain.
“Outsourcing can work great,” Waters said. “Privatization is great [when] there is a strong contract. It seems to be that the government has maybe more options than the private company.
“This [was] just a bad agreement all the way around,” Waters said. “Any time that a local council or local politicians or a local governmental body allows themselves to get into this situation, voters really need to take a look at this in the next election. Taxpayers need to raise their voices there and demand that their representatives work harder to work this out.”
Andrea Dillon ([email protected]) writes from Holly Springs, North Carolina.