INDIANAPOLIS — Indiana cities and school districts struggling to meet their financial obligations could call in an emergency manager to impose some fiscal “tough love,” under a bill filed in the Indiana General Assembly.
Senate Bill 105, filed by State Sen. Ed Charbonneau, a Republican from Valparaiso, has been tagged the “bankruptcy bill” for its provision that would allow insolvent local units of government, including school districts, to file for Chapter 9 bankruptcy.
But Charbonneau and state budget officials call it a “bankruptcy avoidance” bill that, if passed, could impose fiscal discipline on local communities whose leaders may lack the support – or the gumption – to solve their own financial crises.
Under a provision of the bill, a local government unit or one of its major creditors could petition the state to appoint an emergency manager to take over the powers of the local executive and the fiscal branch of that government unit.
The emergency manager could impose what the head of the state Office of Management and Budget calls “tough love” – stringent cost-cutting that include layoffs and contract re-negotiations.
OMB director Cris Johnston worked with Charbonneau on the bill and said bringing in an emergency manager without ties to the distressed government entity is critical.
“The emergency manager is going to be removed enough to make tough decisions that locals aren’t willing to make,” Johnston said.
The bill comes at a time when local governments and school districts are struggling with reduced revenues brought on by property tax caps and cuts in state funding.
Johnston sits on the state’s three-member Financial Distressed Unit Board, the entity that would appoint the emergency manager if petitioned to do so.
The board’s role in the process prompted some criticism during a recent hearing on the bill from those who said it’s an attempt by the state to take over local units of government.
Johnston, who sat through the hearing, scoffed at the notion. “We have enough problems of our own,” he said, referring to the state’s financial challenges brought on by several years worth of declining revenues. “We don’t need to come in and run a local government.”
He also said that the local units of government would have to be dire straits before an emergency manager would step in. Missing a bond payment is one of the criteria in the bill. Another is missing two consecutive payrolls.
Johnston and Charbonneau think the bill would provide a mechanism that would be rarely used, in part because it would require local leaders, such as mayors or school superintendents, to admit they’d failed as fiscal managers.
But the bill would also allow creditors to step in and petition for an emergency manager if the creditor, or a coalition of creditors, was owed more than 30 percent of the government unit’s annual revenue.
“It may force public officials to make some hard decisions,” Charbonneau said. “Maybe it will incentivize folks to do something before it gets to that point.”
To see the bill, and follow any changes made to it, go to the Indiana General Assembly’s website, at www.in.gov/legislative. Under “Session Information,” look at “Bills & Resolutions.”
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