Will We Go Bankrupt? Not Likely...

I have been MIA the last month or so and I apologize.  There has been so much going on personally that blogging has had to fall to the wayside.  I will get you all caught up very soon on all that is going on in the world as it relates to Canby.  In the meantime, here is something I found to be very important to know about our state as it relates to California.

I recently read a new article about the city of Stockton, California on the verge of bankruptcy due to their $900 MILLION obligation to CalPERS, their PERS (Public Employees Retirement System).  They cannot meet it at all!  It's a scary thought when you look across the country and see this happening across the board.  Here in Canby, we are anticipating about a $750,000 PERS/benefits impact to the city budget and the school district is looking at about a $2 MILLION impact.

The state legislature has several PERS reform bills in the pipeline where the savings will go directly to the State's school budget.  It's been a topic of argument and contention among Republicas & Democrats.  I urge you to read about these reform bills that are being proposed.

With budget issues looming like PERS increases coming in the next couple of years, the question must be asked:  Can Oregon Municipalities File For Bankruptcy?  Technically, no  It is against the law.  Who knew?

I  first learned of the Stockton story on Twitter and tweeted - "Stockton owes $900 Million!  Largest city to declare bankruptcy?  Is OR going to be 1st State?  Paging bold OR leaders! #orleg"

I was quickly informed by a Twitter follower, Oregon Oracle, that we could not go bankrupt and laid out why.  Here is their response:

@mayorhodson Why Stockton Can't Happen Here @oregon_oracle wp.me/p3kqSN-48 #orleg #orcot #oprol
— Bruce McCain (@BruceMcCain) April 2, 2013

The article states that in Stockton, California, a city of 300,000 residents, has become the largest US city ever to enter bankruptcy. That left a lot of Oregonians wondering when Portland, Eugene, Salem or other Beaver State cities might follow suit. Not to mention Southern Oregon counties laying off deputy sheriffs and school districts hemorrhaging teachers every budget cycle.

The short answer to the question is “Never,” or at least, “Not now.” The answer has less to do with economic doldrums, crushing PERS costs or “imbalanced tax structure” and everything to do with the technical requirements of the Internal Revenue Code. Neither Portland nor Curry County will be declaring bankruptcy anytime soon because unlike California, Oregon municipalities may not legally do so.

While too many Oregonians may be familiar with chapters 7 and 13 of the Bankruptcy Code, and our struggling businesses know about chapter 11, most people have not heard of chapter 9, which codified the Municipal Bankruptcy Act in 1937, enacted at the end of the Great Depression. Chapter 9 permits a “municipality” to file for relief under the chapter. The term “municipality” is defined in the Bankruptcy Code as a “political subdivision or public agency or instrumentality of a State.” That definition is broad enough to include cities, counties, townships, school districts, and public improvement districts. It also includes revenue-producing bodies that provide services which are paid for by users rather than by general taxes, such as bridge authorities, highway authorities, and gas authorities.

The article goes on to stress that  there are several legal hurdles a municipality must clear before filing is allowed. Before ever reaching the issues relating to insolvency, the municipality first must be specifically authorized to be a debtor by state law or by a governmental officer or organization empowered by State law to authorize the municipality to be a debtor. And that is what separates Oregon from California.

The Golden State is one of only twelve states whose laws expressly authorize municipalities to file under Chapter 9. Arizona is another. Other states, such as Washington and Idaho, authorize taxing districts in their states to file petitions for chapter 9 bankruptcy provided that the taxing district adopts a resolution to authorize the filing. But Oregon remains silent on the issue; and with the requirement that permission must be expressly authorized, silence is as good as a denial.

So, the next time you hear a politician, bureaucrat, political activist or media member asking rhetorically when Oregon cities will follow California’s into Chapter 9 bankruptcy, you can give them the correct answer, which is, under current state law, no Oregon city or county may file for Chapter 9 bankruptcy. I did that last year to a speaker talking about how mounting PERS costs were crushing school districts. While I agreed with his fiscal analysis, he did not appreciate being caught in a public presentation unaware of Oregon’s lack of authorization for Chapter 9 filings. Don’t be that person.

Ultimately, I think this topic brings up a good awareness of the issue of budgetary concerns for our elected officials.

So now you are armed for your next dinner party or political interview or if you want to stump a local politician at a local campaign stop.  Until next time...