Governor Rauner Wants to Use Bankruptcy as a Leverage against Unions in Illinois

“Gov. Bruce Rauner wants to give cities, towns and counties the authority to file for bankruptcy protection, a move that could give local governments a stronger foothold when negotiating with local police and fire officials over costly pension obligations… Rauner aides would not elaborate on how it might work…

“Federal law only allows municipalities to file for bankruptcy with explicit permission from the state where they are located, said James Spiotto, a municipal bankruptcy expert and attorney who is managing director of Chicago-based Chapman Strategic Advisors. Currently, only the Illinois Power Agency has been given such authority. It would take passage of a new state law to extend the authority to municipalities. Asked to explain how the law would be structured, Rauner spokesman Lance Trover said, "The specific details regarding authorizing communities to pursue that option will be part of an ongoing dialogue in the coming weeks…’”

from Illinois May Be the Next State to Let Municipalities File for Bankruptcy by Kim Geiger and Hal Dardick and Joe Mahr

Commentary:

The Center on Budget and Policy Priorities affirms that “it would be unwise to encourage states to abrogate their responsibilities by enacting a bankruptcy statute. States have adequate tools and means to meet their obligations, [particularly Illinois]... Confusion between short-term cyclical deficits and debt, pensions and retiree insurance – and the overstatement of the magnitude of the latter set of problems – draw attention away from the need to modernize state and local budget and revenue systems and address structural problems that have built up over time in these systems. 

“States suffer from ‘structural deficits’ or the failure of revenues to grow as quickly as the cost of services… Structural deficits stem largely from out-of-date tax systems [as in Illinois], coupled with costs that rise faster than the economy in areas such as health care. Fixing these structural problems would help states and localities balance their operating budgets without resorting to [desperate measures]… It is far more constructive to focus on fixing these basics of state and local finance than to proclaim a crisis based on exaggerations of imminent threats.”