Illinois Bill Would Let Municipalities Declare Bankruptcy to Clear Pension Debt

Within weeks of taking Illinois’ governor’s office, Bruce Rauner released a proposal that suggested allowing municipalities to use bankruptcy as a strategy to tame pension debt.

The idea is for towns and cities to use bankruptcy as a last resort to shed pension liabilities.

And even if they never ended up declaring bankruptcy, the threat of such an action could give them leverage in pension negotiations with workers.

Now, a bill in the Illinois House aims to implement the proposal and allow municipalities to file for Chapter 9 federal bankruptcy.

[Read the text of House Bill 298 here.]

The bill, filed by Representative Ron Sandack (R-Downers Grove) got a hearing last week before being referred back to the Rules Committee.

From the Chicago Tribune:

“House Bill 298 would allow desolate and debt-ridden municipalities in Illinois to seek bankruptcy protections through the federal bankruptcy law,” said Sandack. “As more and more municipalities are looking for relief and ways to deal with rising pension liabilities and other costs, this is a tool that can help them stabilize and reorganize financial affairs in ways that benefit taxpayers.”

[…]

“I hear regularly from municipal leaders who worry about their ability to pay their bills and meet other debt requirements,” said Sandack. “This bill would provide one more tool that municipalities could have at their disposal to address their financial futures in a reasonable and taxpayer-friendly manner.”

Across the country, thirty-seven local governments have filed for municipal bankruptcy since 2010.

The bill is co-sponsored by Rep. Jeanne M Ives.

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