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Chapter 9, Title 11 of the United States Code is a chapter of the United States Bankruptcy Code, available exclusively to municipalities and assists them in the restructuring of debts. Most famously, Chapter 9 was used by Orange County, California in 1994 to adjust its debts.
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History
Previous to the creation of Chapter 9 bankruptcy the only remedy when a municipality was unable to pay its creditors was for the creditors to pursue an action of mandamus, and compel the municipality to raise taxes. During the Great Depression this approach proved impossible so in 1934 the Bankruptcy Act was amended to extend to municipalities.[1][2] The 1934 Amendment was declared unconstitutional in Ashton v. Cameron County Water District,[3] however a similar act was passed again by Congress in 1937 and codified as Chapter X of the Bankruptcy Act (later redesignated as Chapter IX).[4] Chapter IX was largely unchanged until it was amended in 1976 in response to New York City's financial crisis.[5] The changes made in 1976 were adopted nearly identically in the modern 1978 Bankruptcy Code as Chapter 9.
To prevent overlap Chapter 11, 11 USC § 101(41), of the US Bankruptcy code defines the term "person" to exclude many so called "governmental units" as defined in 11 USC § 101(27).
Since 1937, there have been fewer than 600 municipal bankruptcies.[6]
Features of Chapter 9
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While in many ways similar to other forms of bankruptcy reorganization (Chapters 11, 12, and 13), Chapter 9 has a number of unique characteristics. Because municipalities are entities of State governments, the power of Congress to adjust their debts through bankruptcy is limited considerably by the 10th Amendment.
Collective bargaining
Municipalities' ability to re-write collective bargaining agreements are much easier than in a corporate Chapter 11 bankruptcy[7][8]and can trump state labor protections[9] allowing cities to renegotiate unsustainable pension or other benefits packages negotiated in flush times.[10]
"Congress did not extend the same projection [sic] to public employees that it did to those working in the private sector under Chapter 11 bankruptcy rules."[11][clarification needed]
Notable Chapter 9 Bankruptcies
Note: Larger bankruptcies are in bold
- Hamilton Creek Metropolitan District, a quasi-municipal corporation in Summit County, Colorado, 1989[12]
- Orange County, California, 1994, due to investment losses.
- Prichard, Alabama, 1999, due to inability to pay pensions. [13]
- Desert Hot Springs, California, 2001, due to losing a housing discrimination lawsuit. [14] [15]
- Millport, Alabama, 2005, due to loss of sales tax revenues after factory closing. [16]
- Moffett, Oklahoma, 2007, due to loss of ability to issue traffic tickets.[17]
- Gould, Arkansas, 2008 [18], due to spending money withheld to pay employee income taxes.
- Vallejo, California, 2008, due to inability to pay pension obligations.[19]
- Westfall Township, Pike County, Pennsylvania, 2009, due to losing a lawsuit [20]
- Washington Park, Illinois, 2009, Due to high license fees for topless bars being ruled unconstitutional. [21]
- Prichard, Alabama, 2009, due to inability to pay pensions and especially state mandated pension increases. [22]
Hospital District Chapter 9 Bankruptcies
A Hospital District is a governmental entity with taxing authority that owns and operates medical facilities.
- The Valley Health Systems district, California[23]
- West Contra Costa Healthcare District, California [24]
Other Entities that Declared Chapter 9 Bankruptcy
- Washington Public Power Supply System (WPPSS), 1983, Due to halt in construction of planned nuclear reactors.
- The West Jefferson Amusement and Public Park Authority owner of VisionLand Park now known as Alabama Adventure Theme Park, 2002, Due to business that could not support its debt.[25]
- Pierce County (WA) Housing Authority, 2008, Residents' lawsuits due to mold in properties. [26]
- Sarpy County, Nebraska Sanitation Improvement District, 2009, due to reduced real estate development.[27]
- New York State's Off-Track Betting Corp., aka OTB, September 2009, mismanagement, [28]
Chapter 9 Bankruptcies that were Declared but Withdrawn
- Bridgeport, Connecticut, 1991 [29]
Notable Defaults that did not result in Chapter 9 Bankruptcy
- Cleveland, Ohio, 1978, Dispute with city creditors over sale of a utility.[30]
- Jefferson County, Alabama reached a forbearance agreement with creditors in 2009. [31]
External links
- Adjustment of Debts of a Municipality
- GASB Accounting and Financial Reporting for Chapter 9 Bankruptcies
References
- ^ Pub. L. No. 251, 73d Cong., 2d Sess., 48 Stat. 798 (1934).
- ^ Public Law Research Institute: Municipal Bankruptcy: State Authorization Under the federal Bankruptcy Code
- ^ 298 U.S. 513, 56 S. Ct. 892, 80 L. Ed. 1309 (1936).
- ^ An Act to Amend an Act Entitled An Act to Establish a Uniform System of Bankruptcy Throughout the United States,, Pub. L. No. 302, 75th Cong., 1st Sess., 50 Stat. 653 (1937).
- ^ An Act to Amend Chapter IX of the Bankruptcy Act to Provide by Voluntary Reorganization Procedures for the Adjustment of the Debts of Municipalities, Pub. L. No. 94-260, 94th Cong., 2d Sess. (1976).
- ^ MuniNetGuide: Vallejo Bankruptcy Filing Garners Attention in Municipal Finance Circles
- ^ In re City of Vallejo, 08-26813-A-9 (E. Dist. Calif.).
- ^ Cf. 11 U.S.C. § 1113
- ^ http://www.nytimes.com/2009/03/31/business/economy/31contracts.html?hp
- ^ http://www.law.com/jsp/article.jsp?id=1202429132330
- ^ P.G. explores bankruptcy option
- ^ HAMILTON CREEK METROPOLITAN DISTRICT v. BONDHOLDERS COLORADO BONDSHARES
- ^ Analysis of Factors Associated with the Municipal Bankruptcy of Pichard, Alabama
- ^ The City of Desert Hot Springs filed Chapter 9 bankruptcy papers in late December, making it the first California city in at least 25 years to seek bankruptcy protection
- ^ California City files for bankruptcy protection
- ^ Millport making a comeback
- ^ Oklahoma: Speed Trap Town Goes Bankrupt
- ^ Bankruptcy filed, tiny town hopes to rise again
- ^ Vallejo's path to bankruptcy - Vallejo Times Herald
- ^ [1]
- ^ Washington Park seeks bankruptcy protection
- ^ Prichard files for bankruptcy protection again
- ^ Hospitals file for Chapter 9 bankruptcy : North County Times - Californian
- ^ Doctors Medical Center files for Chapter 9 bankruptcy protection - San Francisco Business Times:
- ^ VisionLand debt prompts Chapter 9 filing
- ^ Pierce County's low-cost housing filing for bankruptcy
- ^ Sarpy County SID Files For Bankruptcy
- ^ N.Y. Plans Off-Track-Betting Bankruptcy, Bond Sale
- ^ Former Bridgeport CT mayors speak out
- ^ Three Decades After Cleveland Defaulted on Its Debts, Cities Face Recession Budget Woes
- ^ Troubled Alabama county in forbearance agreement
See also
- Financially Distressed Municipalities Act, State of Pennsylvania Act. 47
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