How One Remarkably Gifted Leader Can Make a Difference in Averting Municipal Bankruptcy & Ensuring Continuity of Essential Public Services


In this morning’s eBlog, we applaud, for the umpteenth time, the rhythm guitar lead of the Indubitable Equivalents, the peripatetic, retired (or so he claims…) U.S. bankruptcy Judge Steven Rhodes, who oversaw the rock and roll trial and exit of Detroit from the largest municipal bankruptcy in U.S. history, but who, since then, has made himself indubitably available to create solvency rhythm from Puerto Rico to the small municipality of Hillview, Kentucky. Somehow, his patience and ear for creating fiscal rhythm has proven unique and invaluable.  Judge Rhodes’ intellect, tact, and public commitment would be an invaluable factor to resolution of the nearing insolvency and default of Atlantic City.

A Different Hill Perspective. Hillview, Kentucky, the small municipal suburb of Louisville, has opted not to pursue municipal bankruptcy; instead the city will issue new municipal bonds and raise taxes to settle a legal judgment it owes to its largest creditor, Truck America, according to documents filed in the U.S. Bankruptcy court yesterday. In a joint filing, Hillview and Truck America Hillview’s municipal bankruptcy filing was the first sought by any U.S. municipality since Detroit had filed in 2013. Training LLC stated that in the wake of “exhaustive, arms-length negotiations” with three different mediators, they had reached agreement to permit the City of Hillview to settle Truck America’s $15 million claim at a discount. That agreement, in which the itinerant and electronically, musically retired U.S. Bankruptcy Judge Steven Rhodes served as a mediator, paved the way for U.S. Bankruptcy Judge Alan C. Stout to schedule an expedited hearing this morning to consider a motion which would provide for the dismissal of Hillview’s petition for chapter 9 municipal bankruptcy.

As part of the negotiations, the city intends to raise revenues and issue debt to resolve the claims emanating from a portion of the $15 million judgment owed to Truck America—an award which had been growing by $3,759.54 a day in interest, and which had initially triggered the city’s filing for chapter 9 last August. Under the proposed agreement, Hillview will make an up-front payment of $5 million from the proceeds of issuing new debt, and to channel approximately 8.3% of its general fund revenue to Truck America for the next two decades. The settlement also calls for Hillview to raise its occupational tax to 1.8% from the current rate of 1.5%, increase its insurance premium tax to 7% from 5%, which is collected on insured property and people within the city limits, according to the settlement. Hillview’s debt to Truck America of $15.23 million was based upon a court-ordered judgment it lost over a soured legal dispute involving a contract to purchase city land. The city lost that dispute in court, and has since transferred ownership of the property to the company, but until now had not come to terms over the monetary award—instead, hoping to absolve itself through filing for municipal bankruptcy. After ten years, Hillview can opt to take a discounted buyout option under a formula outlined under the settlement. Any violation of settlement terms constitutes a default, according to court filings. A resolution to the dispute will actually begin in Bullitt County Circuit Court where Truck America had filed a writ of mandamus to enforce the terms of the judgment. The lower court case was automatically stayed when Hillview filed for Chapter 9 bankruptcy on Aug. 20. A decision as to whether Hillview is insolvent, and eligible to continue its case, is still pending. At Thursday’s hearing, Hillview and Truck America will ask Stout to lift the stay so they can file the settlement in the circuit court. After the settlement is filed, Hillview is expected to dismiss the bankruptcy case. The mediators in the case were retired U.S. Bankruptcy Judge Steven Rhodes, who presided in Detroit’s Chapter 9 case; local attorney Walter A. Sholar; and Thomas Fulton, chief judge for the Bankruptcy Court in the Western District of Kentucky.

Unlike in Hillview, the odds of an agreement in Atlantic City as it nears an historic suspension of governmental services appear low: despite calls from any number of New Jersey Assembly members for Gov. Chris Christie to compromise on a state takeover bill and use tools at his disposal to help the East Coast gambling hub avoid default. Gov. Christie, who last week stated he will not support changes to Senate-passed “The Municipal Stabilization and Recovery Act,” which would empower New Jersey’s Local Finance Board to renegotiate outstanding debt and municipal contracts for up to five years, also said he will not sign a companion bill which would enable Atlantic City’s eight remaining casinos to make payments in lieu of taxes for 10 years, including $30 million collectively in 2016 without the state intervention. He noted that Assembly Majority Leader Louis Greenwald (D-Vorhees Township) had canvassed his caucus and determined there were enough votes to pass both bills…leading Assemblywoman Marlene Caride (D-Ridgefield) to observe: “The Speaker has, time and time again, expressed his willingness to sit down and work out a compromise that protects the city and public workers, but his calls for responsible and fair negotiations have fallen on deaf ears…To oppose any dialogue with the Assembly given what’s at stake is irresponsible.” Assemblywoman Valerie Vainieri (D- Englewood), added: “The Governor would have everyone believe that the only way to save Atlantic City from insolvency is to trample public workers, step residents of their right to a representative government and sell off city assets, perhaps irrevocably…I commend Speaker Prieto for taking a measured and thoughtful approach to the situation and standing up against tremendous pressure while the Governor refuses to negotiate in good faith with one half of the state legislature.” Absent some quick resolution, Atlantic City is projected to both cease non-essential governmental services and default on its debt as early as next month. The City has an estimated $102 million deficit for 2016, according to Moody’s. The city budgeted $33.5 million last September in redirected casino taxes from a PILOT bill—but a bill Gov. Christie conditionally vetoed last November.


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