Introduction

Before the COVID-19 pandemic, many local governments in Illinois were on a downward trajectory and headed for bankruptcy. Given a temporary reprieve through federal aid, struggling Illinois communities buoyed by that money will continue to sink once it is spent. Those struggling municipalities need tools to deal with their structural costs. But even mentioning “bankruptcy” is controversial when discussing the dwindling options these struggling cities face. Despite negative perception, municipal bankruptcy is a tool that has been around for nearly a century, and almost half of the states in the country authorize their local communities to take advantage of the federal bankruptcy code.¹

Illinois cities will need options to bring bondholders, public sector unions, employees and pensioners to the table and find compromises that will not result in layoffs of needed personnel, cuts in basic services or tax hikes that residents cannot afford.

Illinois municipalities face the costs of providing and maintaining services, paying salaries and complying with unfunded state mandates.² But a constant and now growing source of the financial pressure on local governments comes from out-of-control and unsustainable pension liabilities. Because the Illinois Supreme Court has interpreted the state constitution to say that pension benefits, including future and unearned increases, can never be modified, these liabilities cannot be stemmed without amending the Illinois Constitution, no matter how unaffordable they are for Illinois municipalities.

To encourage compromise in the face of unprecedented financial pressure, there needs to be a realignment of incentives that come with untouchable local pensions. Illinois cities need the option to file for Chapter 9 bankruptcy in the case that all else fails. Having the option of Chapter 9 itself provides a clear path for what will happen if there is no compromise and the certainty that Illinois communities will have a way forward to provide essential services to the families who live there.

Structured with care, Chapter 9 authorization can level the playing field between the claims of pension funds and residents in need of public services. State oversight over the bankruptcy process will allow difficult decisions to be made in the best long-term interest of struggling municipalities.

A bill introduced in 2017 could serve as a model for such state oversight. House Bill 2575 from the 100th Illinois General Assembly lays out the structure for a Local Government Protection Authority designed to help struggling municipalities get back on their feet.³ The Authority would consist of nine members, one appointed each by the governor, the speaker of the House, president of the Senate, minority leader of the House and minority leader of the Senate and four appointed by the Illinois Municipal League, a local government advocacy organization. This commission would facilitate negotiations between struggling cities, their creditors, and the state.

Such a commission would serve as a good model to guide Illinois municipalities through insolvency, and if necessary, through the process of Chapter 9 bankruptcy. Simply allowing for the option of bankruptcy will encourage public employees and pensioners to come to the negotiating table and will encourage compromise. Compromise will improve the odds that the local government can continue to provide essential services to the community.

There are existing laws that attempt to provide struggling cities with aid from the state, but those laws are inadequate for the needs of many cities facing escalating obligations. These provisions under the Financially Distressed City Law and the Local Government Financial Planning and Supervision Act, or LGFPSA, have been invoked just once since they were passed in 1990, partially because of extremely limiting requirements to qualify for aid under the act, but also because neither can do anything to diminish the biggest issue Illinois local governments face: pension debt.⁴

Currently, local pension liabilities cannot be touched, encouraging intransigence from public employee unions, pensioners, and anyone who stands to lose something from pension reform. But if struggling cities could file for bankruptcy, reforms proposed by local governments could not be dismissed out of hand.

The history: Before the influx of Covid funds, Illinois communities were sinking under the weight of pension liability

Before Congress passed nearly $2 trillion in COVID-19 relief funds, Illinois cities were struggling under the weight of growing pension and other post-retirement employee benefit liabilities.⁵ Some cities, such as Harvey, Illinois, actually defaulted on bonds⁶ and  cut basic services, reducing police and fire personnel to put more money into pension systems.⁷ Other cities raised sales⁸ and property taxes on their residents, who already feel the pain of some of the highest property taxes in the country.⁹ More tax hikes and service cuts are certain to come with the impending drops in revenue and especially jumps in pension liabilities in any future downturn.

The Illinois Constitution provides that pensions cannot be “diminished or impaired.”¹⁰ Citing this provision, the Illinois Supreme Court has struck down efforts to reform pensions at the state and local levels.¹¹ Constitutional pension reform to allow reductions in future benefit increases¹² could save these struggling cities, even while protecting current benefits – and legislation has been introduced that would do so.¹³ But Gov. J.B. Pritzker has shown little willingness to entertain meaningful pension reform.¹⁴

This has left cities without much bargaining power to rein in their pension liabilities. Because the court’s pension rulings mean payment is guaranteed – even in the face of layoffs, public service cuts and revenue losses – pensioners and public employees have little incentive to compromise.

Downstate

Before 2019, there were around 650¹⁵ local pension funds in the state, and the majority were less than 60% funded, according to research by Wirepoints.¹⁶ Since then, 661 downstate fire and police pensions¹⁷ were consolidated to achieve better returns through higher risk-reward investments.¹⁸

However, the local governments are still required to make the required contributions to the fund. And the pensions funds have ways to make them to pay. Illinois cities receive a portion of the state income tax revenue.¹⁹ And in some cases, the state of Illinois collects revenue for local governments, as in the case of local sales taxes.²⁰ And by  state statute, the Illinois comptroller must divert that revenue directly to the pension funds if a city does not make the required contribution.²¹ Petitions to have the comptroller intercept local revenue were filed by pension funds in Chicago in September 2018²² and the neighboring cities of North Chicago²³ and Harvey, Illinois in April 2018.²⁴ Most recently, police and fire pension funds filed petitions to divert revenue from East St. Louis in 2024 for not making the required contributions.²⁵

After years of financial mismanagement and missed contributions to both its police and fire pension funds, the Harvey Police Pension Fund won a $7 million judgment against the city under the intercept law.²⁶ Even after Harvey laid off 40 police and fire employees,²⁷ the city still had to negotiate with both pension funds as well as the Illinois Municipal Retirement Fund to access a portion of its tax revenues – just to meet payroll.²⁸

Between 2016 and 2018, Harvey defaulted multiple times on debt service payments,²⁹ and was not able to resolve its default status until August of 2023.³⁰ Harvey’s annual budget for FY 2021-2022, the most recent year available, appropriated $5.4 million on police and fire pensions and over $4 million on debt service. That is $9.4 million in expenditures of a total budget of less than $51.8 million – over 18%.³¹ Harvey residents can blame those expenditures for nearly half of their 2021 municipal property tax levy.³²

Before relief from the federal government came in, other Illinois cities had taken similar measures to make ends meet. Peoria laid off 27 employees in August 2018,³³ and Rockford downsized 67 safety personnel October the same year.³⁴ At the same time, St. Clair County raised its property tax levy by 5% to pay for spending largely driven by pension costs,³⁵ and Danville, faced with a dwindling population, loss of jobs and a credit rating on the verge of junk, raised property taxes 10% and hiked the city’s public safety pension fee by 178%.³⁶

Federal aid was able to stall the bleeding in many of these cases. For example, Peoria’s revenue from Federal sources increased from under $5.9 million³⁷ in 2017 to over $25 million³⁸ in 2023, with recommendations to disperse the remainder of ARPA funds in 2024.³⁹ Rockford was able to keep its property tax levy flat in large part due to an un influx of over $100 million, almost a quarter of total revenues, in intergovernmental funds in 2023, $70 million of which had not been budgeted for. At the end of 2017, St. Clair County’s revenue from state and federal agencies was about $11.2 million, or 11% of total revenues. By 2022, the federal and state agency share of its revenue was over $45 million, and over a quarter of its total revenue.⁴⁰

But while federal aid rescued struggling municipalities, it did not wipe out their structural financial problems, and it will not continue forever. In general, those funds must be expended by 2026,⁴¹ and signs of the imminent dropoff in revenues are beginning to show in some municipalities already. The Village of Hinsdale has proposed to raise their property tax levy by $513,000, a 4% increase.⁴² Almost 90% of that increase is slated to go towards police and fire pension payments.⁴³ And that is after the village raised its levy by 5% the previous year, the maximum allowed without approval by voter referendum.⁴⁴

Chicago

It might seem like the City of Chicago is in a better financial position than downstate municipalities, and in many ways, that is true. The city is in the top ten of financial centers in the world according to the most recent Global Finance Centres Index,⁴⁵ and it has a far greater tax base to rely upon than any other local government in the state. However, the city has systemic problems of its own. Chicago’s pension systems are separate from the Downstate systems, and they are some of the worst-funded in the country.

According to an Equable Institute survey of 72 local pension systems, Chicago systems make up seven of the 10 worst-funded local systems in the country.⁴⁶ The Chicago Laborers, the Chicago Police, the Chicago Municipal and Chicago Firefighters Pension Fund fill out the bottom four, ranging from 38.5% funded to only 21.6% funded in the case of Chicago Firefighters. Each of these plan’s funded rankings have dropped since 2021, when they were first surveyed by the Equable Institute.

The city has increased its spending on pensions from less than 7% of local funds in 2014 to more than 22% in 2014.⁴⁷ Meanwhile, Chicago also saw a dramatic increase in funding from federal grants. In 2018, the city received almost $1.2 billion in federal grant money, about 10% of its revenue.⁴⁸ In 2024, $3.37 billion of the city’s $16.77 billion in revenues came from the city’s Federal Grant Fund, Covid-19 Grant Fund, or the American Rescue Plan Act Local Fiscal Recovery Fund.⁴⁹ That means federal grants made up roughly 20% of the city’s revenue, double its proportion in 2018.

Even as it was bolstered by federal funds, the city’s budget ballooned by $6 billion between 2019 and 2024. Facing a nearly $1 billion deficit in 2025,⁵⁰ Mayor Brandon Johnson’s quest for new revenues has largely failed. Johnson proposed $800 million in new taxes shortly after taking office,⁵¹ but most of these proposals have been rejected by the General Assembly, the city council or voters. Johnson failed to gain authorization from the state for a proposed financial transactions tax,⁵² and even when he received authorization to put a real estate transfer tax on the ballot, the voters soundly rejected the proposal.⁵³ Johnson then proposed a $300 million property tax hike, but that proposal was unanimously rejected by the city council.⁵⁴ Without spending cuts, the city is going to be in trouble when the federal spigot is shut off. That appears to be sooner rather than later after the 2024 election.

Illinois cannot afford to bail out local pensions

Local pension funds may be counting on, and struggling cities might hope for, help from the state. But Illinois is not in a position to offer much. Despite a streak of credit rating upgrades,⁵⁵ the state’s own pension debt is already estimated to be  $144 billion, according to official numbers,⁵⁶ and in FY 2021 the required pension contributions needed to fund its promises amounted to 18.4% of the state’s own-source revenue, the highest of any state in the country according to Pew Research.⁵⁷ The state ranked near the bottom on GDP growth, jobs growth, wage growth and unemployment rate between 2019 and 2024,⁵⁸ and the state has been losing residents to outmigration every year from 2014 to 2023.⁵⁹

Meanwhile, Illinois taxpayers are already paying more than their peers in neighboring states. According to research from the Tax Foundation, as of 2022 Illinois held the highest state and local tax burden in the Midwest and 7th highest of any state in the country.⁶⁰ And the state also benefited from the injection of federal aid after the COVID-19 pandemic. In Fiscal Year 2023, federal aid made up $6.2 billion of $53.1 billion total General Funds revenue,⁶¹ or 11.7%. In Fiscal Year 2024 that figure dropped to a little over $4.5 billion, leading to a net drop in total General Funds revenue of $545 million.⁶² The state anticipates another drop in total General Funds revenues from federal sources in Fiscal Year 2025.⁶³ If the first days of the Trump administration is anything to go by, Federal aid will be even less forthcoming over the next four years, putting the state in no position to bail out ailing local governments.

Illinois communities will have to look for other options to reduce their liabilities, and those options should include, as a last resort, filing for bankruptcy. Granting local governments access to bankruptcy may seem like a radical solution. But that is just one of the several myths told about Chapter 9.

This report will establish what Chapter 9 bankruptcy is and what happens in a typical Chapter 9 proceeding. It will also debunk some of the common myths surrounding Chapter 9 bankruptcy, and demonstrate why it is a necessary tool for Illinois communities. The report will then lay out a framework for an authorizing statute that will help to avoid some of the negative outcomes seen from recent municipal bankruptcy filings.

Illinois communities need bankruptcy: What does that mean?

The recent bankruptcy filing by the True Value hardware retailer⁶⁴ may be the first thing that comes to the minds of Illinoisans and especially Chicagoans when they think of bankruptcy. The comparison between the 70-year-old retailer and many communities in its home state of Illinois are obvious. Chapter 9 bankruptcy cases, though, are different from private sector bankruptcies in a number of ways.

Unlike other forms of bankruptcy,

1. creditors cannot force cities into bankruptcy,⁶⁵

2. municipalities cannot be forced to sell their assets, and⁶⁶

3. municipalities cannot be liquidated in Chapter 9 bankruptcy.⁶⁷

Chapter 9 bankruptcy is an adjustment of municipal debts overseen by the bankruptcy court; the idea is to ensure fairness to creditors and to allow the municipality to escape insolvency.

States can legislate their own additional requirements, but there are some requirements under the federal bankruptcy code that any municipality must meet to be eligible, such as the requirement that the municipality be insolvent.⁶⁸ (See Appendix for a list of the specific eligibility requirements under the Bankruptcy Code.)

The municipality will then confer with creditors and develop a plan to adjust its debts. The creditors may vote to accept or reject the plan. If the plan is accepted by the creditors, it will be submitted to the bankruptcy court. In the case where a debtor cannot gain approval from the creditors, there is a mechanism for the debtor to “cram down” the plan of adjustment on unwilling creditors if at least one class of creditors impaired under the plan has approved it.

The plan must meet certain criteria under the Bankruptcy Code. (See Appendix for a list of the specific plan confirmation requirements.) The court’s confirmation of the plan will discharge all of the municipality’s debts not retained under the plan. The court will oversee implementation until the plan has been carried out.

Chapter 9 Misconceptions

There are plenty of myths surrounding Chapter 9 bankruptcy. These are some common misconceptions encountered in the context of an Illinois authorization:

Almost half the states in the country authorize Chapter 9

Twenty-four states authorize local governments to file for bankruptcy.⁷¹ Eleven of those states do so with no conditions added to the federal Bankruptcy Code.⁷² Despite this, filings by villages, cities and towns have been rare – most entities to file have been public utilities or other special districts.⁷³

Since the inception of municipal bankruptcy in 1938 to May of 2018, only 680 municipalities filed for Chapter 9, according to a study by James Spiotto and Jeff Garceau published in MuniNet Guide.⁷⁴ And only 64 of the 336 filings between 1954 and May 2018 were by cities, towns, counties and villages – the rest were utility districts, health care systems, transportation authorities, and other local government entities.⁷⁵ Between 2018 and September of 2024, there were only 18 filings.⁷⁶  These numbers show that Chapter 9 authorization does not mean a flood of filings – because of the requirements of the federal code, the costs involved, and the stigma attached, bankruptcy will remain a last resort. Chapter 9 is just one tool to help struggling local governments. But it would be especially useful to Illinois municipalities in light of the limited ability to reform pensions imposed by the Illinois Supreme Court.

Municipalities can adjust pension contracts in bankruptcy regardless of state constitutional protections

State and local employee pensions are protected as contractual rights that cannot be “diminished or impaired” under the Illinois Constitution. But in Chapter 9, the federal Bankruptcy Code takes precedence over the Illinois Constitution. Opinions by bankruptcy courts in the Stockton, California, and Detroit, Michigan cases have confirmed this.

Stockton, California, filed for bankruptcy in 2012.⁷⁷ The burst of the housing bubble and overly generous public pensions and benefits drove the city to insolvency.⁷⁸ One of the main questions in the bankruptcy process was whether public pensions could be adjusted despite state constitutional pension protection.

The Stockton bankruptcy court answered: “[F]ederal bankruptcy law… trump[s] state laws, including state constitutional provisions, that are inconsistent with the exercise by Congress of its exclusive power to enact uniform bankruptcy laws.”⁷⁹

The court in the Detroit bankruptcy case went a step further. Article IX, Sec. 24 of the Michigan Constitution reads:

“The accrued financial benefits of each pension plan and retirement system of the state and its political subdivisions shall be a contractual obligation thereof which shall not be diminished or impaired thereby.”⁸⁰

The bankruptcy court agreed that those words meant “the State of Michigan cannot legally provide for the adjustment of the pension debts of the City of Detroit[.]” Even so, the court further explained, “[t]he federal bankruptcy court. . . is not so constrained.”⁸¹

Detroit went on to cut pension liabilities, although it was other creditors who bore the brunt of Detroit’s debt adjustment.⁸²

The ruling in the Detroit case is not binding on federal bankruptcy courts in Illinois but would almost certainly be consulted by them. This means that Illinois local governments would likely have another path toward pension reform through Chapter 9 bankruptcy, if only the General Assembly would authorize it.

Bankruptcy prevents chaos by providing structure for dealing with insolvency

As previously noted, almost half of U.S. states have some form of municipal bankruptcy authorization. Half of those give unconditional authorization to file for Chapter 9. Nonetheless, these states have not experienced chaos following municipal bankruptcy authorization.

The truth is that bankruptcy filings tend to occur where there is already chaos in municipal finances.

For example, Prichard, Alabama, stopped paying its retirees once the city ran out of money. It filed for bankruptcy in 2009 to stay a lawsuit against the city by unpaid pensioners, according to an article by Cate Long in Reuters.⁸³ And before Central Falls, Rhode Island, filed for bankruptcy, city leaders had already badly mismanaged finances, racking up multimillion-dollar budget deficits.⁸⁴ The city’s cash had been divided among 54 accounts – some of which had been opened decades before and were forgotten.⁸⁵

There was no option to file for bankruptcy for Harvey, Illinois, but that did not keep the city from the chaos of insolvency. Harvey failed to make required police and fire pension payments for more than a decade. And in 2017, the city was ordered by a state appellate court to pay up.⁸⁶ The Illinois comptroller garnished Harvey’s revenues from the state and disbursed them to the city’s police pension fund.⁸⁷ Meanwhile, in April 2018, Harvey was forced to lay off approximately 40 members of its police and fire departments, according to a report by the Daily Southtown.⁸⁸ Harvey had to negotiate with its pension funds and bondholders to release a portion of that tax revenue – just to meet payroll.⁸⁹

Nor did lack of a bankruptcy option prevent layoffs in Peoria or Rockford or dramatic tax hikes in St. Clair or Danville. On the contrary, with added flexibility to adjust pension liabilities, bankruptcy could provide much needed stability to local municipalities.

There is reason to believe that an actual Chapter 9 filing can have a limited spillover effect in municipal bond markets, but also that bankruptcy authorization lowers municipal borrowing costs.

The total number of Chapter 9 filings is so few that it is difficult to say how bond markets respond with much certainty. Michigan’s municipal bond yields may have taken a hit in part due to Detroit’s filing,⁹⁰ but once the city reentered the securities market, evidence suggests that the market did not punish the city for its bankruptcy filing.⁹¹

However, Chapter 9 bankruptcy authorization is correlated with lower borrowing costs, according to research from Purdue and Michigan State University.⁹² As an example, in 2018 Fitch lowered its rating on Illinois sales-tax bonds because it was not clear how they would be treated in the event of extreme financial stress – because Illinois municipalities were not authorized to file for Chapter 9.⁹³ Unlike the situation now, Chapter 9 authorization would let bondholders know what to expect when a municipality becomes insolvent.

And some financial experts explicitly advocated Chapter 9 as a solution for Chicago’s financial woes. According to Former FDIC Chairman William M. Isaac, “The process would entail about two years of unpleasant headlines, but the city… will rebound far sooner and less painfully than if [it] stay[s] on [its] current paths.”⁹⁴

Chapter 9 authorizations are often accompanied by state oversight mechanisms of local government finances as well, which can boost bondholder confidence. For example, in a 2017 Brookings Institution study of municipal insolvency events, states that were classified as “proactive” in dealing with struggling municipalities saw little to no contagion effect. They did, however, see higher state borrowing costs and increased risk taking by municipalities before being placed under state oversight. Meanwhile, states that authorized Chapter 9 without proactive intervention saw a degree of contagion in municipal bond markets.⁹⁵

Cities defaulting on bonds can see a limited contagion effect in their bond markets.⁹⁶ But a Chapter 9 authorization does not automatically mean Chapter 9 filings, much less defaulting on bonds. There is little evidence to show that Chapter 9 authorization alone, and not the conditions that lead states to seek Chapter 9, hurts municipal bond markets.

Illinois should not let these misconceptions get in the way of making all options available. The Prairie State should consider Chapter 9 authorization as a tool, as states across the country have already. Bankruptcy experiences in other states can guide the Chapter 9 process in Illinois.

Lessons: Illinois cities can learn from other states’ experiences

Unsustainable pension liabilities were a major factor in driving cities to file for bankruptcy in California, Rhode Island, Michigan and most recently Pennsylvania.⁹⁷ Each of these states took their own approach in guiding the bankruptcy process. While the bankruptcy of Chester, Pennsylvania is still ongoing as of this writing, learning from these approaches, Illinois can avoid the pitfalls other states have fallen into. And it can copy their more successful strategies.

California

Before 2012, California authorized municipalities to file Chapter 9 with no restrictions outside of the bankruptcy code.⁹⁸ Only then did the state impose a neutral evaluation process and require the declaration of a fiscal emergency before a municipality could file for bankruptcy.⁹⁹ Thus, California has a higher number of bankruptcy filings than most other Chapter 9 states. California saw 49 Chapter 9 filings between 1980 and 2018.¹⁰⁰ Three Californian cities facing significant pension debt¹⁰¹ filed for bankruptcy in less than a decade:

1. Vallejo in 2008
2. San Bernadino in 2012
3. Stockton in 2012

The state pension system, CALPERS, threated to lower the discount rate if pensions were not paid in full. That meant local governments would have to make larger employer contributions to employee pensions. Because of this threat, none of these cities touched pension liabilities in their Chapter 9 reorganizations.¹⁰²

Once these cities finally exited bankruptcy, the structural pension debt remained, and there was talk of “Chapter 18,” or a second bankruptcy in all three cities – San Bernadino, Vallejo and Stockton – because of failure to deal with the primary cause of their insolvency.¹⁰³ So far, that has not come to pass, but these cities’ struggles are something Illinois should seek to avoid.

Rhode Island

In 2010, Central Falls, Rhode Island faced $80 million in unfunded pension and retiree health care debt with only $16 million in annual revenue.¹⁰⁴ City leaders had mismanaged finances, racking up multimillion-dollar budget deficits.

Rhode Island’s Fiscal Stability Act allows cities to request the state appoint a fiscal receiver. That receiver is authorized to file for Chapter 9 bankruptcy.¹⁰⁵ The city declared a fiscal emergency in 2010, and the state appointed a receiver to take over Central Falls’ finances. Central Falls filed for Chapter 9 bankruptcy shortly thereafter. In 2011 Central Falls, Rhode Island, filed for bankruptcy under this law.¹⁰⁶

Central Falls officials met with retirees to ask them to accept cuts to their pension benefits.¹⁰⁷ Meanwhile, Rhode Island passed a statute protecting city bondholders in bankruptcy. Bondholders would be paid before anyone else.¹⁰⁸ Lawmakers justified this move by citing Rhode Island’s need to keep the municipal bond market attractive to investors. Pensioners, meanwhile, received no such protection.

In the end, even while residents saw their taxes hiked, Central Falls pensioners saw their benefits cut by up to 55%. The severity of these cuts can be laid at the feet of those bondholder protections. Even so, the size of pension liabilities in Central Falls meant benefits were never going to come out of bankruptcy untouched.¹⁰⁹

Despite the pain and the unfair treatment of retirees, Central Falls’ reorganization left it in a better place financially. Just three years after its bankruptcy filing, the city saw a $1.7 million budget surplus by 2014.¹¹⁰ Today, Central Falls looks to be on the upswing. The city passed its first budget independent of state oversight in 2017.¹¹¹ And it passed its first property tax cut in a decade the year before.¹¹² Central Falls is making its full annual required contribution to pensions.

Its credit rating improved to a level where the mayor is considering issuing bonds to reopen a recently shuttered community center.¹¹³ The city has even started a rainy-day fund in the case of another economic downturn.¹¹⁴ And while its pensions are still categorized as “critical,” the city has been paying its full Annual Required Contribution,¹¹⁵ and appropriations for debt payments made up a little over 5% of its FY 2025 expenditures,¹¹⁶ compared to over 13% in FY 2010.¹¹⁷ Much of this recovery can be credited to the city’s opportunity for a fresh start in Chapter 9.

Michigan

In 2013, Detroit became the largest city to file for Chapter 9 bankruptcy.¹¹⁸ Michigan’s constitutional pension protection became a focal point of the proceedings. Public sector unions sued to declare the Chapter 9 authorization law itself unconstitutional and fought any reduction to pension benefits as a violation of the state law.¹¹⁹

As mentioned above, the bankruptcy court ruled that Detroit could adjust its pension liabilities in its reorganization plan.¹²⁰ Michigan imposes significant state oversight over the bankruptcy process. The state financial authority can independently make a preliminary review of the city’s finances in certain scenarios. These scenarios include a request by the city, a request by a large creditor or the city missing payroll or pension contributions, among others.¹²¹

If the state financial authority finds that there is a financial emergency, the city has the following options:¹²²

1. Make a consent agreement with the state treasurer – the city has to meet certain conditions in exchange for state aid.
2. Appointment of an emergency manager – the governor appoints a manager to take over for the city council for a period of time.
3. Neutral evaluation process – a neutral evaluator will mediate between the city and its creditors to attempt to come to a settlement agreement.
4. With consent of the governor, file for Chapter 9 bankruptcy.

Detroit entered into a consent agreement with the governor.¹²³ That agreement gave the state oversight over city finances in exchange for state aid.¹²⁴ The city failed to meet state deadlines, and the governor appointed an emergency manager to take over the city’s operations.¹²⁵ That emergency manager finally filed for Chapter 9 bankruptcy.¹²⁶

When Detroit filed its Chapter 9 case, Michigan had no law protecting bondholders as had Rhode Island. Nonetheless, General Retirement Fund beneficiaries still saw a 4.5% cut in benefits and their COLAs eliminated, while police and fire pensions saw their COLAs reduced from 2.25% to 1%,¹²⁷ even while bondholders saw significant cuts in the reorganization.¹²⁸

Detroit was just released from state financial oversight in 2018 after exiting bankruptcy three years earlier.¹²⁹ The city received aid from both the federal and the state governments, as well as from private philanthropy motivated by preventing the artwork in Detroit’s museums from being sold to pay creditors.¹³⁰ But the bankruptcy reorganization allowed the city to cut over $7 billion of its $18 billion in debt.¹³¹

The bankruptcy process in many ways allowed Detroit to recover. Unemployment dropped from almost 18% in January of 2014 to under 10% in 2019, going as low as 7.4% in the month before the COVID-19 pandemic hit.¹³² The city has seen increased economic development, and has renewed services it was forced to cut during the worst of its financial crisis.¹³³ And while the cuts to public employee benefits have been painful, city finances have seen a recovery.¹³⁴ Pensions are still a concern for the future, but its plan of adjustment in Chapter 9 gave it the chance it needed to get back on its feet.

The solution for Illinois: Make state financial oversight available and authorize Chapter 9

The results of these states’ bankruptcy experiences show that there are some specific concerns to be addressed when authorizing Chapter 9.

Central Falls’ pensioners saw their benefits drastically cut because the state had sought to protect bondholders. In Detroit, pensions saw modest cuts and bondholders received 64 cents on the dollar.¹³⁵ In California, some cities failed to address their most pressing financial issues and found themselves little better off after exiting bankruptcy.

Illinois must craft its policy to avoid these outcomes.

Illinois should not favor bondholders like Rhode Island, nor pensioners like California. Nor should it allow cities to file for bankruptcy without oversight. Illinois should allow an independent commission to oversee the process for aiding struggling municipalities, and that commission should be able to impose conditions on those cities before authorizing Chapter 9, as in Michigan. But it should be the local government, not the state, that makes the decision to give up control in exchange for access to bankruptcy.

Bankruptcy should always be the last resort for struggling cities. But unless it is an option, needed reform will not be possible. Consensual solutions achieved through negotiation should be the goal. But since the Illinois Supreme Court has consistently rejected pension reform, cities need additional tools to bring public unions to the bargaining table.

And if it does eventually come to a Chapter 9 filing, Illinois cities need not see the same severe and unfair benefit cuts that Central Falls, Rhode Island, did, nor experience the ineffectiveness of the California bankruptcies. Bondholders should not be protected at the expense of pensioners, but pensioners will have to face the realities of unaffordable benefits.

When left to their own devices, city councils do not always have the resources or political ability to deal with their financial problems. Struggling cities will sometimes need aid from the state in the form of financial oversight and guidance.

There is an oversight process for local governments already on the books in Illinois, but that legislation falls far short of what is needed for cities to get back on their feet. The Financially Distressed City Law allows for the creation of a financial advisory authority for a distressed home rule municipality.¹³⁶ The financial advisory authority has the power to step in and approve loans, budgets and contracts, and otherwise oversee the city’s finances.

The Local Government Financial Planning and Supervision Act¹³⁷ allows for a unit of local government with less than 25,000 residents in a financial emergency to petition the governor to create a financial planning commission to help manage that local government’s finances. The LGFPSA allows a stay of debt collections (not a discharge of debt) owed to Illinois state or local governments or agencies only. The commission may approve or withhold any state funding going to the distressed municipality.

It is difficult for a home rule municipality to even qualify for the Financially Distressed City Law. A city must be in the top 5% of home rule municipalities in terms of aggregate property tax rates and in the bottom 5% of home rule municipalities in per capita tax yield. Even if it does meet those requirements, the General Assembly must declare the municipality a financially distressed city by joint resolution.

And for the LGFPSA, only units of government with populations under 25,000 can take advantage of the supervision. The law also requires that:

1. The local government be in continuing default in principal and interest payments on debt obligations for more than 180 days.
2. The unit of government fails to make payment of over 20% of all payroll employees for more than 30 days.
3. The unit of government be insolvent, i.e., the local government is generally not paying or able to pay its debts as they come due.

Not only are these requirements difficult to meet, but the laws also do nothing to deal with pension liabilities that most burden Illinois cities. It is no wonder that they have rarely been invoked. An Illinois Policy Institute search for local governments that have petitioned for state aid under the LGFPSA found none.

So far, only East St. Louis, Illinois, has taken advantage of the Financially Distressed City Law. East St. Louis requested certification as a financially distressed city in 1990 and remained under that law’s oversight for the next 23 years, according to Reuters.¹³⁸ The city was able to negotiate changes in some of its obligations to creditors such as the IRS and to access bond financing, but did not emerge free of fiscal problems or debt.

During its oversight, East St. Louis filed a lawsuit against its advisory authority.¹³⁹ The authority attempted to impose its own budget on the city, after rejecting city-proposed budgets. East St. Louis challenged and won its case, but the incident demonstrates the limited nature of oversight under the Financially Distressed City Law. Illinois needs to go back to the drawing board and establish oversight procedures that cities can actually make use of.

A basic framework for oversight of this kind was laid out in House Bill 2575, introduced in the Illinois General Assembly in 2017 based on a proposal by the Civic Federation.¹⁴⁰ The “Illinois Local Government Protection Authority Act,” or LGPA, establishes a commission that is designed to “provide financially distressed local governments and their employees with a venue, encouragement and supervision to aid in finding creative, voluntary solutions to financial challenges.”¹⁴¹

The commission would consist of nine members: four appointed by the Illinois Municipal League (an advocacy organization representing the interest of local governments), one appointed each by the governor, speaker of the House, president of the Senate, minority leader of the House and minority leader of the Senate. The Local Government Protection Authority Act stops short of giving specific authorization for Chapter 9 bankruptcy, but instead gives the commission the ability to recommend that authorization. But If negotiations fail for financially distressed municipalities, a commission like the Local Government Protection Authority should be given the power to authorize a Chapter 9 filing.

State oversight will be essential to ensure that bondholders and pensioners are treated fairly in authorizing Chapter 9. The LGPA should be empowered to impose conditions on any authorization. For example, the LGPA could require that the local government accept an emergency financial manager appointed by the LGPA to take over the local government’s finances. Appointing such a manager would allow the city to make unpopular decisions necessary to make sure the city is not looking at a second Chapter 9 filing a few years down the line.

Allowing the commission discretion over the authorization can ensure Chapter 9 will be a last resort, all other options having been exhausted. Representatives such as the Municipal League will give voice to concerns of neighboring cities before any bankruptcy is authorized. But cities would finally be able to address the ever-growing pension liabilities that hang over their heads.

Unlike the Financially Distressed City Law or the LGFSPA, the commission under the LGPA does not have stringent requirements to qualify for state intervention. If either the unit of local government, the Illinois Comptroller, a creditor of the local government who has significant payments past due, or a pension fund petitions the commission for intervention, the commission may simply approve that petition to begin the intervention process.¹⁴²

That is not to say that HB 2575 is perfect. The bill gives the authority to make recommendations on increasing taxes as well as the authority to require a home-rule local government to vote on the proposal. In non-home rule municipalities, it requires the additional step of having the proposal go to citizens for referendum. Any proposal to raise taxes made by an external commission should be approved by the local community in a referendum, whether it is a home rule unit or not.

The bill also contemplated a safety net provided by the state to bail out local pension funds that are severely underfunded. The state has serious pension debt of its own and is in no position to bear the additional burden of local pensions. Not only that, but such a provision creates a moral hazard for municipalities banking on getting a state bailout.

Conclusion

Given the right tools, local governments can work with employees and retirees to come to solutions in the best long-term interest of everyone: the continued solvency and recovery of struggling Illinois communities. Chapter 9 authorization is an essential tool, encouraging negotiation and compromise between local governments, public servants and bondholders. But state financial oversight is a prerequisite necessary to help local governments before they get to that point. Bankruptcy should only be authorized as a last resort for insolvent municipalities.

Illinois needs to implement an oversight process to aid struggling municipalities, but one that includes the option for a fresh start in bankruptcy – a way out of basic service cuts, public safety layoffs, property tax hikes, and insolvency. If the state offers more options, struggling Illinois communities can have some hope of recovery.

Endnotes

^{1 State statutes; National Association of Public Pension Attorneys, State Statutes Authorizing Chapter 9 Bankruptcy, (Annual Conference, June 26, 2015), https://www.nappa.org/assets/docs/ArchivedConferenceMaterials/2015ConferenceAustin/nappa_2015%20friday%20mixon%20municipal%20bankruptcy.pdf.}

^{2 Task Force on Local Government Consolidation and Unfunded Mandates, Delivering Efficient, Effective, and Streamlined Government to Illinois Taxpayers, (December 17, 2015), https://www.civicfed.org/sites/default/files/local_government_consolidation_and_unfunded_mandates_task_force_final_report.pdf.}

^{3 H.B. 2575, 100th G.A. (Ill. 2017).}

^{4 Joe Tabor, “Hog-Tied: Illinois state law not equipped to address local governments’ pension problems,” Illinois Policy Institute, July 23, 2018, https://www.illinoispolicy.org/hog-tied-illinois-state-law-not-equipped-to-address-local-governments-pension-problems/.}

^{5 Benjamin VanMetre, Taxpayers on the hook for billions in hidden government-worker}

^{health-care costs, (Illinois Policy Institute, July 2014), https://files.illinoispolicy.org/wp-content/uploads/2014/07/GASB_final.pdf.}

^{6 Yvette Shields, “Troubled Harvey, Illinois, trying to strike deal with GO bondholders,” Bondbuyer, January 28, 2020, https://www.bondbuyer.com/news/troubled-harvey-illinois-trying-to-strike-deal-with-go-bondholders.}

^{7 Adam Schuster, “Harvey pension crisis leads to mass layoffs,” Illinois Policy Institute, April 11, 2018, https://www.illinoispolicy.org/harvey-pension-crisis-leads-to-mass-layoffs/.}

^{8 Vincent Caruso, “Carbondale employees see raises despite deeply underwater pension funds,” May 16, 2018, https://www.illinoispolicy.org/carbondale-employees-see-raises-despite-deeply-underwater-pension-funds/.}

^{9 See e.g., Orphe Divounguy, Rising property tax burdens squeeze illinois families, (Illinois Policy Institute, 2018), https://www.illinoispolicy.org/reports/rising-property-tax-burdens-squeeze-illinois-families/; Orphe Divounguy, Suman Chattopadhyay, and Bryce Hill, House hunters: How high taxes hurt home}

^{investment in Illinois, (Illinois Policy Institute, Fall 2018), https://www.illinoispolicy.org/reports/house-hunters-how-high-taxes-hurt-home-investment-in-illinois/; Joe Barnas, “Quincy property taxes to pay for pensions,” Illinois Policy Institute, December 21, 2018, https://www.illinoispolicy.org/quincy-hikes-property-taxes-to-pay-for-pensions/; Jannelle Cammenga, “Geneso hikes property taxes by 10 percent to pay for pensions,” Illinois Policy Institute, November 30, 2018,  https://www.illinoispolicy.org/geneseo-hikes-property-taxes-by-10-percent-to-pay-for-pensions/; Vincent Caruso, “Norridge hikes property taxes by more than 35 percent to pay for pensions,” Illinois Policy Institute, November 27, 2018, https://www.illinoispolicy.org/norridge-hikes-property-taxes-by-more-than-35-percent-to-pay-for-pensions/; Patrick Andriesen, “Illinois property taxes at $5k are higher than 5 states combined,” Illinois Policy Institute, August 1, 2024, https://www.illinoispolicy.org/illinois-property-taxes-at-5k-are-higher-than-5-states-combined/.}

^{10 Ill. Const. art. XIII, § 5.}

^{11 See e.g., Adam Schuster, “Chicago Park District pension reform ruled unconstitutional, Illinois Policy Institute, April 5, 2018, https://www.illinoispolicy.org/chicago-park-district-pension-reform-ruled-unconstitutional/; Jacob Huebert, “Illinois Supreme court strikes down chicago pension reform but opens door for other changes,” Illinois Policy Institute, March 24, 2016, https://www.illinoispolicy.org/illinois-supreme-court-strikes-down-chicago-pension-reform-opens-door-for-other-changes/; Benjamin VanMetre, “Circuit court rules illinois pension bill unconstitutional,” Illinois Policy Institute, November 21, 2014, https://www.illinoispolicy.org/circuit-court-rules-illinois-pension-bill-unconstitutional/; Ted Dabrowski, “Chicago pension reform ruled unconstitutional,” July 24, 2015, https://www.illinoispolicy.org/chicago-pension-reform-ruled-unconstitutional/; In re Pension Reform Litigation, 2015 IL 118585.}

^{12 Adam Schuster, Tax Hikes vs. Reform: Why Illinois Must Amend}

^{its Constitution to Fix the Pension Crisis, (Illinois Policy Institute, Summer 2018), https://files.illinoispolicy.org/wp-content/uploads/2018/08/Tax-hikes-vs.-reform1.pdf.}

^{13 H.J.R.C.A. 21, 101st G.A. (Ill. 2019); S.J.R.C.A. 9, 101st G.A. (Ill. 2019).}

^{14 Elizabeth Bauer, “More on Illinois pensions: yup, we’re kicking the can down the road,” Forbes, February 14, 2019, https://www.forbes.com/sites/ebauer/2019/02/14/more-on-illinois-pensions-yup-were-kicking-the-can/#718ec7de28fd.}

^{15 Illinois Department of Insurance Public Pension Division, 2019 Biennial Report (2017-2018), (October 1, 2019), 28, https://idoi.illinois.gov/content/dam/soi/en/web/insurance/sites/insurance/reports/reports/pension-biennial-report-2019.pdf.}

^{16 Ted Dabrowski and John Klingner, “Beyond Harvey: many illinois municipalities running out of options, Wirepoints, May 11, 2018, http://www.wirepoints.com/beyond-harvey-many-illinois-municipalities-running-out-of-options-wirepoints-special-report/.}

^{17Illinois Department of Insurance Public Pension Division, 2023 Biennial Report (2021-2022 data), (September 29, 2023), 5, https://idoi.illinois.gov/content/dam/soi/en/web/insurance/sites/insurance/reports/reports/pension-biennial-report-2023.pdf.}

^{18 Adam Schuster, “Pension consolidation is a tiny step in fixing Illinois’ gigantic problem,” Springfield State-Journal Register, October 22, 2019, https://www.sj-r.com/story/opinion/columns/2019/10/22/pension-consolidation-is-tiny-step/2470368007/.}

^{1935 ILCS 5/901.}

^{20 “Sales Tax,” Illinois State Comptroller, accessed January 29, 2025, https://illinoiscomptroller.gov/financial-reports-data/revenues-state-income/sales-tax.}

^{21 40 ILCS 5/3-125(c).}

^{22 Yvette Shields, “Chicago latest to face intercept for delinquent pensions,” Bond Buyer, September 14, 2018, https://www.bondbuyer.com/news/chicago-latest-to-face-intercept-for-delinquent-pensions.}

^{23 Yvette Shields, “Public safety pension funds may flood Illinois with intercept requests,” Bond Buyer, April 18, 2018, https://www.bondbuyer.com/news/public-safety-pension-funds-may-flood-illinois-with-intercept-requests?brief=00000159-f607-d46a-ab79-fe27f2be0000.}

^{24 Zak Koeske, “Harvey lays off 40 police and fire employees, union officials say,” Chicago Tribune Daily Southtown, April 10 2018, https://www.chicagotribune.com/suburbs/daily-southtown/ct-sta-harvey-layoffs-st-0411-story.html.}

^{25 Carolyn P. Smith, “IL should divert state money from East St. Louis to fund police, fire pensions, boards say,” Belleville News-Democrat, February 8, 2024, https://www.bnd.com/news/local/article285143732.html.}

^{26 Board of Trustees of the Harvey Police Pension Fund v. City of Harvey, 79 N.E.3d 636 (2017); Zak Koeske, “Illinois Supreme Court Vacates Ruling in Harvey Tax Garnishment Case; State to Continue Withholding Funds,” Chicago Tribune Daily Southtown, April 26, 2018, https://www.chicagotribune.com/suburbs/daily-southtown/news/ct-sta-supreme-court-harvey-order-st-0427-story.html.}

^{27 Adam Schuster, “Harvey pension crisis leads to mass layoffs.”}

^{28 Adam Schuster and Joe Tabor, “Settlement in harvey foreshadows pension crisis in illinois,” Illinois Policy Institute, July 30, 2018, https://www.illinoispolicy.org/settlement-agreement-in-harvey-foreshadows-pension-crisis-in-illinois/.}

^{29 Editorial Board, “Have we got a muni bond for you: Illinois shows that pensions will be paid before bondholders,” Wall Street Journal, May 10, 2018, https://www.wsj.com/articles/have-we-got-a-muni-bond-for-you-1525993374.}

^{30 Caitlin Devitt, “Harvey, Illinois, finally seals deal ending litigation over bond default,” BondBuyer, August 29, 2023, https://www.bondbuyer.com/news/harvey-illinois-finally-seals-deal-on-bond-default-litigation.}

^{31 https://www.cityofharveyil.gov/wp-content/uploads/2022/01/Budget-Appropriations-Ordinance-FY-2021-2022.pdf.}

^{32 City of Harvey, Illinois, Levy Ordinance #3446, (Harvey, Illinois, 2021), https://www.cityofharveyil.gov/wp-content/uploads/2022/01/Tax-Levy-FY-2021-2022.pdf.}

^{33 Adam Schuster, “Crowding out: Pension pressure leads to layoffs in Peoria,” Illinois Policy Institute, August 29, 2018, https://www.illinoispolicy.org/crowding-out-pension-pressure-leads-to-layoffs-in-peoria/.}

^{34 Vincent Caruso, “Pension costs ravaging Rockford’s Budget as Leaders Consider Police and Fire Cuts,” Illinois Policy Institute, October 15, 2018, https://www.illinoispolicy.org/pension-costs-ravaging-rockfords-budget-as-leaders-consider-police-and-fire-cuts/.}

^{35 Vincent Caruso, “St. Clair County approves 5 percent property tax levy hike,” Illinois Policy Institute, September 25, 2018, https://www.illinoispolicy.org/st-clair-county-approves-5-percent-property-tax-levy-hike/.}

^{36 Brendan Bakala, “Danville property taxes and fees to pay for pensions,” Illinois Policy Institute, December 6, 2017, https://www.illinoispolicy.org/danville-passes-property-tax-and-fee-hikes-to-pay-for-pensions/.}

^{37 City of Peoria, Illinois, 2018-2019 Biennial Budget (October 9, 2017), 8, https://peoriagov.org/DocumentCenter/View/1249/2018-Final-Budget.}

^{38 City of Peoria, Illinois, 2024-2025 Biennial Budget, (December 12, 2023), 35, https://peoriagov.org/DocumentCenter/View/5017/2024-2025-Biennial-Budget.}

^{39 Ibid., 44.}

^{40 St. Clair County, Illinois, 2024 Anticipated Revues Revenue Appropriations and Budget, (2023), ix, https://www.co.st-clair.il.us/webdocuments/departments/auditor/budgets/2024%20Annual%20Budget.pdf?2:35%20PM.}

^{41 U.S. Department of the Treasury, Compliance and Reporting Requirements: State and Local Fiscal Recovery Funds, (December 19, 2024), https://home.treasury.gov/system/files/136/SLFRF-Compliance-and-Reporting-Guidance.pdf.}

^{42 David Giuliana, “Hinsdale seeks $500K more from taxpayers,” Patch.com, October 2, 2024,}

^{https://patch.com/illinois/hinsdale/hinsdale-seeks-500k-more-taxpayers.}

^{43 Ibid.}

^{44 Ibid.}

^{45 Z/Yen, The Global Financial Centres Index 36, (September, 2024), 4, https://www.longfinance.net/media/documents/GFCI_36_Report_2024.09.24_v1.1.pdf.}

^{46 Equable Institute, State of Pensions 2024, (July 16, 2024), https://equable.org/wp-content/uploads/2024/07/Equable-Institute_State-of-Pensions-2024_FINAL.pdf.}

^{47 Bryce Hill, “Chicago property taxes have doubled in 10 years thanks to pensions, Illinois Policy Institute, December 17, 2024, https://www.illinoispolicy.org/chicago-property-taxes-have-doubled-in-10-years-thanks-to-pensions/.}

^{48 City of Chicago, 2019 Budget Overview, (December 1, 2018), 36, https://www.chicago.gov/content/dam/city/depts/obm/supp_info/2019Budget/2019BudgetOverview.pdf.}

^{49 City of Chicago, 2025 Budget Recommendations, (Jan 1, 2025), 571, https://www.chicago.gov/content/dam/city/depts/obm/supp_info/2025Budget/2025_RecBook_final-Digital.pdf.}

^{50 Dylan Sharkey, “Bring Chicago Home referendum being rejected by voters,” Illinois Policy Institute, March 19, 2024, https://www.illinoispolicy.org/bring-chicago-home-referendum-being-rejected-by-voters/.}

^{51 Joe Tabor, “What Brandon Johnson’s tax plan needs from Chicago aldermen, Springfield,” Illinois Policy Institute, April 24, 2023, https://www.illinoispolicy.org/what-brandon-johnsons-tax-plan-needs-from-chicago-aldermen-springfield/.}

^{52 Dan Petrella, “Gov. J.B. Pritzker casts doubt on part of Brandon Johnson’s tax plan after first meeting with mayor-elect,” Chicago Tribune, April 7, 2023, https://www.chicagotribune.com/2023/04/07/gov-jb-pritzker-casts-doubt-on-part-of-brandon-johnsons-tax-plan-after-first-meeting-with-mayor-elect/.}

^{53 Sharkey, “Bring Chicago Home referendum rejected by voters.”}

^{54 Todd Feurer, et. al., “Chicago City Council unanimously rejects Mayor Johnson’s proposed $300 million property tax hike,” November 15, 2024, https://www.cbsnews.com/chicago/news/chicago-city-council-set-to-vote-down-mayor-johnsons-proposed-300-million-property-tax-hike/.}

^{55 Illinois State Comptroller, “Comptroller Mendoza welcomes news of Moody’s change in outlook from ‘stable’ to ‘positive’ on Illinois bonds,” April 23, 2024, https://illinoiscomptroller.gov/about/news/press-releases/comptroller-mendoza-welcomes-news-of-moodys-change-in-outlook-from-stable-to-positive-on-illinois-bonds.}

^{56 LyLena Estabine, “Illinois state pension debt climbs to $144B,” December 16, 2024, https://www.illinoispolicy.org/illinois-state-pension-debt-climbs-to-144b/.}

^{57 David Draine, et al., “Long-term liabilities weigh on state finances,” Pew Charitable Trusts, May 7, 2024, https://www.pewtrusts.org/en/research-and-analysis/articles/2024/05/07/long-term-liabilities-weigh-on-state-finances.}

^{58 Bryce Hill, “Pritzker scorecard: Governor failing on economy, taxes, education,” Illinois Policy Institute, August 15, 2024, https://www.illinoispolicy.org/pritzker-scorecard-illinois-governor-failing-on-economy-taxes-education/.}

^{59 Bryce Hill, “Illinois population drops for 10th year in a row during 2023,” Illinois Policy Institute, December 19, 2023, https://www.illinoispolicy.org/illinois-population-drops-for-10th-year-in-a-row-during-2023/.}

^{60 Erica York and Jared Walczak, State and Local Tax Burdens, Calendar Year 2022, (Tax Foundation, April 7, 2022), https://taxfoundation.org/data/all/state/tax-burden-by-state-2022/.}

^{61 Commission on Government Forecasting and Accountability, Illinois General Assembly, State of Illinois Budget Summary: Fiscal Year 2025, (July 30, 2024), 11, https://cgfa.ilga.gov/Upload/FY%202025%20Budget%20Summary.pdf.}

^{62 Ibid.}

^{63 Ibid.}

^{64 Patrick Andriesen, “True Value bankruptcy creates half of 1,790 layoffs,” Illinois Policy Institute, November 22, 2024, https://www.illinoispolicy.org/true-value-bankruptcy-creates-half-of-1790-illinois-layoffs/.}

^{65 11 USCS § 109(c).}

^{66 11 USCS § 904.}

^{67 11 USCS § 901 (excluding 11 USCS § 701et. seq.).}

^{68 11 USCS §§ 903, 943.}

^{69 11 USCS § 901. (Incorporating 11 USCS §§ 1129(b)(1), 1129(b)(2)(A), and 1129(b)(2)(B).)}

^{70 Illinois, Iowa, Colorado, and Oregon authorize bankruptcy in very limited subset of municipalities and are not included in this total. See Iowa Code § 468.378}

^{71 Ala. Code § 11-81-3; Ariz. Rev. Stat. § 35-603; Ark. Code Ann. § 14-74-103; Cal. Gov’t Code § 53760; Conn. Gen. Stat.}

^{§ 7-566; Fla. Stat. Ann. § 218.01; Idaho Code § 67-3903; Ky. Rev. Stat. § 66.400; La. Rev. Stat. Ann. § 13:4741; Mich. Comp. Laws Serv. § 141.1558; Minn. Stat. Ann. § 471.831; Mo. Rev. Stat. § 427.100; Mont. Code Ann. § 7-7-132; Neb. Rev. Stat. Ann § 13-402; N.J. Stat. § 52:27-40; N.Y. Local Fin. Law § 85.30; N.C. Gen. Stat. § 23-48; Ohio Rev. Code}

^{Ann. § 133.36; Okla. Stat. tit. 62, § 283; 53 Pa. Stat. Ann. § 11701.261; 45 R.I. Gen. Laws § 9-7(b)(3); S.C. Code Ann.}

^{§ 6-1-10; Tex. Loc. Gov’t Code § 140.001; Wash. Rev. Code Ann. § 39.64.040.}

^{72 Ala. Code § 11-81-3; Ariz. Rev. Stat. § 35-603; Ark. Code Ann. § 14-74-103; Idaho Code § 67-3903; Minn. Stat. Ann. § 471.831; Mo. Rev. Stat. § 427.100; Mont. Code Ann. § 7-7-132; Okla. Stat. tit. 62, § 283; S.C. Code Ann.}

^{§ 6-1-10; Tex. Loc. Gov’t Code § 140.001; Wash. Rev. Code Ann. § 39.64.040.}

^{73 James Spiotto and Jeff Garceau, “Chapter 9 Municipal Bankruptcy Statistics: Use by Number, Type and Year,” MuniNet Guide, June 14, 2018,  https://muninet.harris.uchicago.edu/2018/06/14/municipal-bankruptcy-statistics/.}

^{74 Ibid.}

^{75 Ibid.}

^{76 “Municipal bankruptcy: A primer on Chapter 9,” Nuveen, accessed January 30, 2025, https://www.nuveen.com/en-us/insights/municipal-bond-investing/municipal-bankruptcy-a-primer-on-chapter-9.}

^{77 Jim Christie, “Stockton, California Files for Bankruptcy,” Reuters, June 28, 2012, https://www.reuters.com/article/us-stockton-bankruptcy/stockton-california-files-for-bankruptcy-idUSBRE85S05120120629.}

^{78 Michelle Conlin and Jim Christie, “Stockton: The Town the Housing Boom Broke,” Reuters, March 19, 2012, https://www.reuters.com/article/us-usa-economy-stockton/stockton-the-town-the-housing-boom-broke-idUSBRE82I0EJ20120319.}

^{79 In re City of Stockton, 526 B.R. 35, 50 (Bankr. E.D. Cal. 2015).}

^{80 Mich. Const. art. IX, § 24.}

^{81 In re City of Detroit, 504 B.R. 191, 244 (Bankr. E.D. Mich. 2013).}

^{82 Monica Davey and Mary Williams Walsh, “Plan to Exit Bankruptcy Is Approved for Detroit,” New York Times, November 7, 2014, https://www.nytimes.com/2014/11/08/us/detroit-bankruptcy-plan-ruling.html.}

^{83 Cate Long, “The Real History of Public Pensions in Bankruptcy,” Reuters, August 9, 2013, http://blogs.reuters.com/muniland/2013/08/08/the-real-history-of-public-pensions-in-bankruptcy/.}

^{84Joe Tabor, “Rhode Island City Offers Dire Warning to Illinois Municipalities Struggling with Pension Debt,” Illinois Policy Institute, June 6, 2018, https://www.illinoispolicy.org/rhode-island-city-offers-dire-warning-to-illinois-municipalities-struggling-with-pension-debt/.}

^{85 Ibid.}

^{86 Board of Trustees of Harvey Firefighters’ Pension Fund v. City of Harvey, 2017 IL App (1st) 153074, 96 N.E.3d 1; Board of Trustees of the Harvey Police Pension Fund v. City of Harvey, 2017 IL App (1st) 153095, 79 N.E.3d 636.}

^{87 Zak Koeske, “Harvey Cuts Deal for $1.3M in Withheld Taxes, Escapes Financial Crisis for Now — But City Still Owes Millions, June 7, 2018, https://www.chicagotribune.com/suburbs/daily-southtown/news/ct-sta-20180607-story.html.}

^{88 Zak Koeske, “Harvey Lays Off 40 Police and Fire Employees, Union Officials Say,” Chicago Tribune Daily Southtown, https://www.chicagotribune.com/suburbs/daily-southtown/ct-sta-harvey-layoffs-st-0411-story.html.}

^{89 Adam Schuster and Joe Tabor, “Settlement Agreement in Harvey Foreshadows Pension Crisis in Illinois.”}

^{90 Nikolay Gospodinovy, Brian Robertsonz, and Paula Tkac, Do Municipal Bonds Pose a Systemic Risk? Evidence}

^{from the Detroit Bankruptcy, (December 2014), https://www.bostonfed.org/-/media/Documents/conference/PDF/tkac.pdf.}

^{91 James L. Tatum, III, “Detroit’s Bankruptcy and Market Reentry,” Emory Bankruptcy Development Journal 37, no. 1 (2020), https://scholarlycommons.law.emory.edu/cgi/viewcontent.cgi?article=1198&context=ebdj.}

^{92 Stefano Rossi and Hayong Yun, What Drives Financial Reform? Economics and Politics of the State-Level Adoption of Municipal Bankruptcy Laws, (December 2015), https://ecgi.global/sites/default/files/What%20Drives%20Financial%20Reform%3F%20Economics%20and%20Politics%20of%20the%20State-Level%20Adoption%20of%20Municipal%20Bankruptcy%20Laws.pdf.}

^{93 “Municipal bonds once seen as the safest now tarnished,” Bloomberg News, June 20, 2018, https://www.investmentnews.com/article/20180620/FREE/180629989/municipal-bonds-once-seen-as-the-safest-now-tarnished.}

^{94 Michael Cembalest, The ARC and the Covenants: State of the States, 2018, J.P Morgan Private Bank (October 9, 2018), https://www.jpmorgan.com/jpmpdf/1320746272624.pdf.}

^{95 Pengjie Gao, Chang Lee and Dermot Murphy, Municipal Borrowing Costs and State Policies for Distressed Municipalities, Journal of Financial Economics, (The Brookings Institution, May 19, 2017, Forthcoming), https://www.brookings.edu/wp-content/uploads/2016/07/Murphy-et-al.pdf.}

^{96 Ibid.}

^{97 Hadriana Lowenkron and Steven Church, “Crippled by pension debt, Pennsylvania city seeks bankruptcy,” Bloomberg, November 10, 2022, https://www.bloomberg.com/news/articles/2022-11-10/crippled-by-pension-debts-city-near-philadelphia-goes-bankrupt.}

^{98 2011 Cal ALS 675, 2011 Cal AB 506, 2011 Cal Stats. ch. 675.}

^{99 Cal. Gov’t Code § 53760.}

^{100 James Spiotto and Jeff Garceau, “Chapter 9 Municipal Bankruptcy Statistics: Use by Number, Type and Year.”}

^{101 “San Bernardino Has Defaulted on $10 Million in Bond Payments,” Reuters, March 18, 2015, https://www.cnbc.com/2015/03/18/san-bernardino-has-defaulted-on-10-million-in-bond-payments.html; Joe Nation, PhD, Pension Math: Public Pension Spending and Service Crowd-Out in California, 2003-2030, (Stanford Institute for Economic Policy Research, October 2, 2017,}

^{Working Paper No. 17-023), https://siepr.stanford.edu/sites/default/files/publications/17-023.pdf.}

^{102 Cate Long, “The Real History of Public Pensions in Bankruptcy”; Jim Christie, “Judge Confirms San Bernadino, California’s Plan to Exit Bankruptcy,” Reuters, January 27, 2017, https://www.reuters.com/article/us-sanbernardino-bankruptcy-idUSKBN15B2FQ.}

^{103 Daniel DiSalvo and Stephen Eide, When Cities Are at the Financial Brink: The Case for “Intervention Bankruptcy,” (Manhattan Institute, January 2017), https://www.manhattan-institute.org/sites/default/files/R-DDSE-0117.pdf; Steven Eide, “City bankruptcies should be a state responsibility,” Orange County Register, January 28, 2017, https://www.ocregister.com/2017/01/28/city-bankruptcies-should-be-a-state-responsibility/.}

^{104 Ibid.}

^{105 R.I. Gen. Laws § 45-9-7(b)(3).}

^{106 Joe Tabor, “Rhode Island city offers dire warning.”}

^{107 Abby Goodnough, “City in Rhode Island asks retirees to sacrifice,” New York Times, July 19, 2011, https://www.nytimes.com/2011/07/20/us/20centralfalls.html.}

^{108 Michael Corkery, “Bondholders win in Rhode Island,” Wall Street Journal, August 4, 2011, https://www.wsj.com/articles/SB10001424053111903885604576486610528775994.}

^{109 Joe Tabor, “Rhode Island city offers dire warning.”}

^{110 Associated Press, “Once bankrupt, Central Falls now has $1.7M surplus,” Boston Globe, March 22, 2014, https://www.bostonglobe.com/metro/2014/03/21/once-bankrupt-central-falls-now-has-surplus/lbLsoCoe30iSRPi9XCveYI/story.html.}

^{111 Wilder Arboleda, “City council approves first budget out of bankruptcy,” City of Central Falls, June 20, 2017, http://www.centralfallsri.us/central_falls.}

^{112 Joshua Giraldo, “Mayor Diossa signs City of Central Falls FY 2017 budget into law,” City of Central Falls, June 7, 2016, http://www.centralfallsri.us/mayor_diossa_signs_city_of_central_falls_fy_2017_budget_into_law.}

^{113 Wilder Arboleda, “Mayor James A. Diossa’s fiscal responsibility yields no tax Increase in Central Falls,” City of Central Falls, May 15, 2018, http://www.centralfallsri.us/mayor_james_a_diossa_s_fiscal_responsibility_yields_no_tax_increase_in_central_falls.}

^{114 Ibid.}

^{115Municipal Employees’ Retirement System State of Rhode Island Central Falls, GASB Statement No. 68 Employer Reporting Accounting Schedules, (May 2024), 12, https://ersri.org/sites/default/files/2024-08/2023GASB68_Unit3004.PDF.}

^{116 City of Central Falls, Rhode Island, Adopted Budget Fiscal Year 2025, (June 10, 2024), 10, https://www.centralfallsri.gov/media/7226.}

^{117 City of Central Falls, Rhode Island, Adopted Budget Fiscal Year 2009-2010, (June 25, 2009), 3, https://www.centralfallsri.gov/media/7331.}

^{118 Pete Saunders, “Detroit, Five Years After Bankruptcy,” Forbes, July 19, 2018, https://www.forbes.com/sites/petesaunders1/2018/07/19/detroit-five-years-after-bankruptcy/#790719cbcfeb.}

^{119 In re City of Detroit, 504 B.R. 191 (Bankr. E.D. Mich. 2013).}

^{120 Ibid. at 244.}

^{121 Mich. Comp. Laws Serv. § 141.1544.}

^{122 Mich. Comp. Laws Serv. § 141.1547.}

^{123 Monica Davey, “For Detroit, a Path to Recovery Under State Oversight, New York Times, April 5, 2012, https://www.nytimes.com/2012/04/06/us/detroits-consent-agreement-allows-a-shot-at-recovery.html}

^{124 “Timeline: Detroit’s Road Through Bankruptcy,” Detroit News, November 7, 2014, https://www.detroitnews.com/story/news/local/wayne-county/2014/11/07/timeline-detroits-road-bankruptcy/18654077/.}

^{125 Ibid.}

^{126 Ibid.}

^{127 James Tatum, “Detroit’s pension benefit restoration should remain limited,” Citizens Research Council of Michigan, April 24, 2024, https://crcmich.org/detroits-pension-benefit-restoration-should-remain-limited.}

^{128 James Tatum, “Detroit has borrowed $100 million in July, and has the capacity to borrow more,” Citizens Research Council of Michigan, August 10, 2023, https://crcmich.org/detroit-borrowed-100-million-in-july-and-has-the-capacity-to-borrow-more.}

^{129 Camila Domonoske, “Detroit Released from Financial Oversight, 3 Years After Emerging from Bankruptcy,” NPR, April 30, 2018, https://www.npr.org/sections/thetwo-way/2018/04/30/607134957/detroit-released-from-financial-oversight-3-years-after-emerging-from-bankruptcy.}

^{130 Randy Kennedy, “’Grand Bargain’ saves Detroit Institute of Arts,” New York Times, November 7, 2014, https://www.nytimes.com/2014/11/08/arts/design/grand-bargain-saves-the-detroit-institute-of-arts.html.}

^{131 In re City of Detroit, 524 B.R. 147 (2014) .}

^{132 “Unemployment Rate: Detroit city, MI, (U)”, Bureau of Labor Statistics, accessed January 30, 2025, https://data.bls.gov/dataViewer/view/timeseries/LAUCT262200000000003.}

^{133 Corey Williams, “Five Years After Declaring Bankruptcy, Detroit Reborn at a Cost,” Chicago Tribune, July 16, 2018, http://www.chicagotribune.com/business/ct-biz-detroit-reborn-20180716-story.html.}

^{134 Corey Williams, 10 years since bankruptcy, Detroit’s finances are better but city workers and retirees feel burned,” Associated Press, July 16, 2023,}

^{https://apnews.com/article/detroit-bankruptcy-debt-pensions-12786f6e3d0eb6c9910b430b08f08f30.}

^{135 Tatum, “Detroit has borrowed $100 million in July.”}

^{136 65 ILCS 5/8-12-3.}

^{137 50 ILCS 320/3.}

^{138 “The Only ‘Distressed City’ in Illinois Will Shed State Oversight,” Reuters, November 14, 2013, https://www.reuters.com/article/usa-illinois-eaststlouis/the-only-distressed-city-in-illinois-will-shed-state-oversight-idUSL2N0IZ20A20131114.}

^{139 City of East St. Louis v. Financial Advisory Authority, 188 Ill.2d 474, 722 N.E.2d 1129 (1999).}

^{140 H.B. 2575, 100thth G.A., (Ill. 2017).}

^{141 Civic Federation, Local Government Protection Authority, A Proposal Prepared by}

^{the Civic Federation Pension Committee, (March 2015), https://www.civicfed.org/sites/default/files/LGPAProposal-March2015.pdf.}

^{142 H.B. 2575, 100thth G.A., (Ill. 2017).}