Proposed bill would allow Indiana cities to declare bankruptcy

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A plan backed by Gov. Mitch Daniels would allow local governments in Indiana to ask for a state takeover and declare bankruptcy if necessary.

Daniels says he hopes there won’t be many local governments that seek bankruptcy, but says the state needs to have the law clarified and on standby in case it happens.

The Times of Munster reports that Republican state Sen. Ed Charbonneau of Valparaiso is sponsoring legislation to outline the procedure. His bill would allow a local government in financial trouble to ask the Indiana Distressed Unit Appeals Board to appoint an “emergency manager” to run the government. The emergency manager would have the power to cut the budget, renegotiate labor contracts, and approve or veto contracts, expenses, loans and hiring.

The bill states that if the emergency manager can’t turn around the local government’s finances, the unit would be allowed to seek federal bankruptcy protection. State law currently doesn’t allow Indiana governments to declare bankruptcy.

The newspaper reports that the State Board of Accounts in recent audits has questioned the abilities of the city governments in Gary and Lake Station to “continue as a going concern” because of continued high city spending despite significantly reduced city revenues because of statewide property tax caps.

Gary is the only municipality to have received approval from the state distressed unit board for higher local property taxes, but the panel can no longer adjust tax caps after next year.

Voters in November approved a referendum putting the caps in the Indiana Constitution, which will take effect in 2012. Local governments around the state have complained that the caps are severely limiting their tax revenues.

The General Assembly begins its 2011 legislative session on Jan. 5.

Associated Press

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