As a follower of Chapter 9 municipal bankruptcy, the conclusion of Detroit's mega-case left me a bit dispirited. Sure, I posted a few follow-up comments here and here but it simply wasn't the same.
I was thus excited to read of a new municipal bankruptcy filing, this time by the "city" of Hillview, Kentucky. Read the Bloomberg report here. Sadly, however, Hillview, with its population of 8,000, promises not to provide nearly the level of legal and political excitement as had Detroit. Indeed, Hillview has only one large and problematic creditor, Truck America Training, which recently received a judgment for breach of contract for $11.4 million.
Interest on the judgment is clicking along at $3,700 per day, which works out to $168 per resident per year. Of course, even keeping current with the interest does nothing to pay off the principal amount of the judgment, which would cost each resident $1425. The only ways the city could plausibly expect to pay would be to cut current expenditures drastically. Simultaneously paying other municipal creditors means that many municipal services would be eliminated or curtailed, a topic I addressed in Who Bears the Burden? The Place for Participation of Municipal Residents in Chapter 9. Alternatively, tax rates would be raised to a point where the net result might be a reduction in tax revenue, which I discussed in Who Pays the Price The Necessity of Taxpayer Participation in Chapter 9.
The evident inability of Hillview to pay this judgment in full makes one wonder why the city and Truck America weren't able to cut a deal before the city filed for relief under Chapter 9. As I described in yet another article about municipal bankruptcy, Municipal Bankruptcy: When Doing Less Is Doing Best, a city has the power to "cram down" a recalcitrant creditor without concern for complying with the roadblock of the absolute priority rule that commercial or individual creditors face.
I'm sure there's more to this story and I'll let folks know what I find out.
I was thus excited to read of a new municipal bankruptcy filing, this time by the "city" of Hillview, Kentucky. Read the Bloomberg report here. Sadly, however, Hillview, with its population of 8,000, promises not to provide nearly the level of legal and political excitement as had Detroit. Indeed, Hillview has only one large and problematic creditor, Truck America Training, which recently received a judgment for breach of contract for $11.4 million.
Interest on the judgment is clicking along at $3,700 per day, which works out to $168 per resident per year. Of course, even keeping current with the interest does nothing to pay off the principal amount of the judgment, which would cost each resident $1425. The only ways the city could plausibly expect to pay would be to cut current expenditures drastically. Simultaneously paying other municipal creditors means that many municipal services would be eliminated or curtailed, a topic I addressed in Who Bears the Burden? The Place for Participation of Municipal Residents in Chapter 9. Alternatively, tax rates would be raised to a point where the net result might be a reduction in tax revenue, which I discussed in Who Pays the Price The Necessity of Taxpayer Participation in Chapter 9.
The evident inability of Hillview to pay this judgment in full makes one wonder why the city and Truck America weren't able to cut a deal before the city filed for relief under Chapter 9. As I described in yet another article about municipal bankruptcy, Municipal Bankruptcy: When Doing Less Is Doing Best, a city has the power to "cram down" a recalcitrant creditor without concern for complying with the roadblock of the absolute priority rule that commercial or individual creditors face.
I'm sure there's more to this story and I'll let folks know what I find out.
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