Civic Federation warns against municipal bankruptcy, offers alternative

SPRINGFIELD — The Civic Federation, a government watchdog group, says allowing cities to go bankrupt is a bad idea, and they have a better one for cities burdened by debt, rising costs, declining revenue and under-funded pensions.
The group says the state should form a Local Government Protection Authority, which would bring pension funds, bond holders and other creditors to the table, and offer recommendations on ways a city could work through its debts without going through bankruptcy.
Civic Federation President Laurence Msall testified in discussing the plan before an Illinois House committee, and explained the proposal was developed by the Civic Federation’s pension committee after seeing so many local governments struggling with dramatically under-funded pensions, and facing an array of unpopular and politically very difficult but necessary decisions.
He envisions the nine-member authority being called in either at a city’s request, or if the state comptroller, a pension fund, or a creditor to which the city is delinquent with $5 million makes a request.
Asked whether bankruptcy should be an option for a city that has followed all the recommendations of the authority but remains truly insolvent, he said yes.