Republican Lawmaker: Give Bankruptcy A Chance

An Illinois Republican has proposed changing state law to let cities and towns declare bankruptcy.

As state government considers cutting back the money it shares with municipalities, Rep. Ron Sandack says it ought to give cities more tools to fix their own finances. Sandack says letting cities threaten bankruptcy would give them more leverage in dealing with unions.

“The public pension situations, with their police and fire — there’s not a real level playing field in those negotiations," Sandack says.

But Pat Devaney, president of the Associated Fire Fighters of Illinois, says police and fire pensions are often no more costly than those of other city workers.

“So while it’s convenient to blame police and fire for all of the financial woes of our communities, unfortunately it’s not grounded in fact," Devaney says.

Unlike a business that declares bankruptcy, cities would not be subject to liquidation. Rather, filing what's known as a Chapter 9 bankruptcy, they could negotiate "adjustments" to their financial obligations, including to union employees and retirees. That's what happened in Detroit.

Of course, while that technically results in consensual agreements, the cities have the “background threat" of even more drastic things a bankruptcy judge might do.

Or, as Democratic Rep. Elaine Nekritz put it at a hearing last week: “Sounds like a negotiation with a gun to your head.”