Government Bankrupt

According to an article in the Courier-Journal, Georgetown, Indiana is considering bankruptcy after facing a debt of $1.45 million over a long-delayed sewage plant project. The municipal bankruptcy would be unprecedented in Indiana and many experts are concerned that the city may not have the power to declare bankruptcy.

The article said:

“Georgetown’s leaders “have no authority” to declare the town bankrupt, said Brian Bailey, general counsel for the Indiana Department of Local Government Finance.
Bailey cited a 1994 update to the federal bankruptcy code that says a municipality “must be specifically authorized” by state law to be a debtor, and no Indiana law does that. (Kentucky law authorizes its local governments to file for bankruptcy, but none have ever done so.)”

But despite the uncertainty surrounding the city’s power to declare bankruptcy, Georgetown has recently passed an ordinance intended to give the municipality the authority to seek bankruptcy protection. If successful in filing bankruptcy, Georgetown won’t be alone; already there have been 3 municipal bankruptcies in the first quarter of 2009 and 4 municipal bankruptcies in 2008. Municipal bankruptcies hit an all time high in 2005 when a total of 11 cities filed for bankruptcy protection; but despite that there have only been 33 municipal bankruptcies in the past five years. Could we see that number increase? As cities struggle with decreased tax revenues and budget deficits we may see many more cities considering bankruptcy.