Harold Adams, writing for the Louisville Courier Journal, has an article on the town of Georgetown’s consideration of seeking bankruptcy protection to get out of debts owed to the City of New Albany and a Jeffersonville engineering firm related to sewage treatment.
[T]he town made plans to build its own sewage treatment plant and get out of a long-term contract with the city of New Albany sewer board.
Georgetown agreed, in exchange for being allowed out of the contract early, to begin construction on its own plant within 30 months or pay New Albany a $450,000 termination fee. Georgetown also selected a site for the plant and hired the Jeffersonville firm of Capitol Engineering to design and build the plant.
But then problems arose. Residents near the proposed site challenged Georgetown’s plan to annex it. And Floyd County refused to give the required zoning approval.
The delays — Georgetown is still in the process of selecting an alternate site — triggered the termination fee with New Albany and a provision in the contract with Capitol Engineering that called for payments in the event the project stalled.
The bankruptcy code requires that municipalities have specific state authority before they are allowed to seek bankruptcy protection. A spokesperson for the Department of Local Government Finance say they don’t have any such authority. The municipality says that the Home Rule statute should be considered sufficient authority. It seems to me that, generally, when a municipality goes to the Home Rule well, that means it doesn’t have much of a legal leg to stand on.
The article is a little amusing in that it quotes Georgetown Town Council President Billy Stewart as saying that the money just isn’t there and “there’s no way for Georgetown to pay.” Later in the article, the DLGF points out that “the town could take out bonds to pay any court judgment and repay the bonds with a tax that would not count against its state-imposed taxing limit.” This is followed by town attorney, David Andrews, saying, “If a bankruptcy were possible, then that would be something that might be preferable to paying out on a big judgment.” He says that he thinks Georgetown has a strong legal case. My take (based solely on one news article) is that this has more to do with the town’s negotiating tactics in the dispute with the engineering firm than with any real belief that they’ll be able to receive much in the way of bankruptcy relief.
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