Following Bridgeport, other cities think about going for broke

June 17, 1991|By Ellen Uzelac | Ellen Uzelac,Sun Staff Correspondent

SHENANDOAH, Pa. -- It's hard to kill a town like Shenandoah.

So when the scrappy little Pennsylvania community declared municipal bankruptcy a few years back, it said it was broke, not dead.

"Nothing is going to kill off this town," says G. Wilbur Knott, who at85 has served at one time or another as Shenandoah's fire chief, school board secretary, councilman and deputy sheriff. "We're survivors. Anybody who doesn't like it here should move the hell out."

Ten days ago, Bridgeport, Conn., a city of 140,000, became the largest U.S. community ever to declare bankruptcy, and municipal specialists believe others may be on the brink, particularly in the economically fragile Northeast.

Contrary to public perception, bankruptcy isn't used only by individuals and businesses trying to work through financial failures. Governments use it, too. Several dozen government units, including a handful of U.S. communities, have filed for bankruptcy in the last decade, and as financially pressed towns andcities fight to stay afloat, the last-gasp measure may get even more of an airing.

As municipalities strive to balance their budgets by June 30, some face almost certain insolvency without emergency bailouts extensions. Twenty-nine states and hundreds of cities face major shortfalls and are scrambling to close the gap, according to the National Association of State Budget Officers and the National League of Cities.

"Some of these municipalities are so delicate that something as obscure as unexpectedly high snow removal costs next winter or unexpectedly high oil prices could pull the trigger on them," according to Boston attorney Leonard Kopelman, whose firm serves as counsel to 130 Massachusetts communities. "A lot of them have their backs to the wall."

"Chelsea [a Boston suburb] is just a moment away from filing Chapter IX," he said. "What is the alternative when you can't make payroll, when you can't meet your debt obligations, and when you can't cut the budget anymore?''

Sixty-nine municipal bankruptcies -- Chapter IX, as they're called -- were filed between 1980 and 1990, but only seven involved towns or villages. Those included Copperhill, Tenn.; South Tucson, Ariz.; Mound Bayou, Miss.; Wellston, Mo.; and Wapanucka, Okla. The vast majority of municipal bankruptcies were filed by water districts, school districts or special taxing districts.

It is unclear whether the widely watched Bridgeport bankruptcy will withstand challenges by the state government to overturn it, but the way 34-year-old Jan Cohen, who owns a Bridgeport lumber company, looks at it, "Things have gotten so bad that people don't want to live here anymore. They can't keep raising taxes. Enough is enough. This could be the town's salvation."

Bridgeport Mayor Mary Moran told the House Budget Committee in Washington last week that the city's only other options were to slash fire and police services or raise taxes by 18 percent. She said some of Bridgeport's largest employers had threatened to leave the already economically depressed city if that happened. Bankruptcy, she said, would allow the city to restructure its $220 million debt without cutting services.

After taking the rare step of declaring bankruptcy three years ago, Shenandoah, population 6,200, managed to climb out of debt after Pennsylvania awarded it a bailout loan and citizens poured $72,990 into a "Love Fund."

Chapter IX enables a municipality to delay paying its debts while it arranges a payment schedule with creditors. It does not allow a city's assets to be sold to pay creditors, nor does it remove city officials' governing powers.

In the case of Shenandoah, an incoming borough council discovered a $350,000 debt that was blamed on budget mismanagement. Federal and state taxes hadn't been paid. Vendors hadn't been paid. At one point, Councilman Joe Valento, 70, had to put $100 in the pot to keep a city truck in gas for a few extra days.

But folks in this square-mile town in the Alleghenies, 70 miles northeast of Harrisburg, are so accustomed to economic hardship that "a little bankruptcy," as Mr. Valento called it the other day, wasn't going to throw them over the edge.

Long after its heyday as a coal-mining boom town -- and hometown of the late band leader greats Jimmy and Tommy Dorsey -- Shenandoah residents seem still to carry the bravado that years ago earned their community its moniker as "the only Wild West town in the East."

The key to Shenandoah's recovery has been a plan mandated by the state that created the position of borough manager; raised property taxes; and led to the purchase of a computer software system. Up until a few years ago, the city books were done by hand.

"We'll all spend a long time living the bankruptcy down," said Joseph L. Palubinsky, 36, borough manager. "There's always that stigma attached. Even after you've resolved your problems, there's still that image of a bankrupt community."

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