City faces music of its legal debts
Musicians perform at a free weekly bluegrass jamboree and fish fry in Hillview, Ky., in November.
In the Kentucky town of Hillview, residents enjoy free monthly use of a trash dumpster, and a free bluegrass music program every Thursday night. They’re still buzzing about the recent free winter festival and exotic animal show, which was interrupted when a 70-pound porcupine darted into the ladies’ room.
Such small luxuries ease life in the Louisville suburb, which in August sought bankruptcy protection rather than pay a $15-million legal judgment. As the first U.S. city to file since Detroit’s $18-billion insolvency in 2013, Hillview, a growing community of 8,000 people, is trying to plow new ground. It isn’t claiming an inability to pay the debt, which is about five times its annual budget, but an unwillingness.
“I don’t think they can shut us down as a city, and I don’t think they can put this burden on the taxpayers,” Mayor Jim Eadens said.
For cities under stress, Detroit’s record case changed municipal bankruptcy from a stigma to a potential solution, and the mere threat of court oversight has proven an effective tactic for settling with creditors. Mammoth Lakes, Calif., and Boise County, Idaho, filed for Chapter 9 under similar circumstances as Hillview, though they settled out of court. Officials in Puerto Rico, the cash-strapped Caribbean commonwealth, have pleaded with Congress to let it turn to the courts to slash its $70 billion of debt.
Hillview’s filing is “more evidence that municipalities increasingly consider Chapter 9 as a way to cure balance-sheet problems,” said analyst Nathan Phelps at Moody’s Investors Service. The U.S. Bankruptcy Court in Louisville this week will hear arguments on the filing.
The judgment that began the affair stems from a 10-year-old dispute with a trucking company over 40 acres in the middle-class city of modest homes. A 2012 jury verdict awarded Truck America Training LLC $11.4 million for business the company said it lost when Hillview took control of the land and evicted it.
Negotiations mediated by retired Bankruptcy Judge Steven Rhodes, who oversaw the Detroit case, produced no settlement. In the meantime, interest costs on the award grew almost $3,800 a day. The city’s filing Aug. 20 froze the growth.
Tammy Baker, Hillview’s city attorney, said it was “financially irresponsible” not to file bankruptcy because of mounting interest costs.
Since then, Eadens said, there has been no talk of tax increases, service cuts or dismissals in the city’s 24person workforce to pay the obligation. The free chipping of fallen limbs continues, as does a $3 sausage, biscuit and gravy breakfast with the mayor on Wednesdays.
At last week’s bluegrass event, a crowd of about 100 ate fish sandwiches and coleslaw while listening to a seven-piece band belt out gospel standards like “I Shall Not Be Moved.”
“You don’t hear much talk about bankruptcy now, because services haven’t been cut,” said Terry Bohannon, the city’s recreation director.
Nor is there talk of bond defaults. Debt obligations will be met, the city said. Not, however, the payment to the trucking company.