Bankruptcies, defaults, and other local government financial emergencies Page: 15
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currently stands, it is the hope of Penn Bank and the
authority that Northwest will either rehabilitate the system
or pay off the loan to Penn Bank. In either case, the
federal and state funds then should be forthcoming to
complete the system.
Contract problems and poor financial planning led to
the bankruptcy of Pleasant View Utility District of
Cheatham County, TN. Unlike North and South Shenango
Joint Municipal Authority, the contract problems
did not arise with the construction contractor but rather
with its fiscal agent. After realizing the initial bond issue
of $560,000 was wholly inadequate to perform the necessary
construction, a refinancing was undertaken to
raise total indebtedness to $2.2 million. However, owing
to the allegedly exorbitant fees charged by the fiscal
agent, the district received construction funds of slightly
less than $1.2 million, an inadequate amount to construct
Poor financial planning on the part of the district's
commissioners and its advisors stands out as the second
and equally significant factor leading to Pleasant View's
bankruptcy. An improperly designed rate structure did
not provide enough funds for payment of the principal
and interest on the outstanding debt. As a result of poor
financial planning, the district was in arrearage for more
than a decade in its payment of maturing debt. When a
single party who held 50% of the district's debt threatened
to file suit against Pleasant View for nonpayment
of interest and principal, the district sought protection
under Chapter 9.
Ultimately, the case was settled without benefit of any
court-approved reorganization. The district was able to
recover approximately 50% of the damages sought
against its fiscal agent in an out-of-court settlement. In
addition, the district's commissioners proposed a reorganization
of the debt combined with a significant
change in the rate structure and financial management.
In an out-of-court agreement with the party holding 50%
of the bonds and with the subsequent concurrence all of
the remaining bondholders contacted, the proposal was
accepted. Holders of matured bonds were to be repaid
the principal amount along with accrued interest. The
agreement provides for the timely payment of future
principal and interest and explicitly stipulates the manner
in which such payment can be ensured.
OTHER GOVERNMENTAL ENTITIES
The Management Institute
Three additional governmental entities filed for bankruptcy
during this period-the Management Institute,
the Jersey City Medical Center and the Pulaski Memorial
Hospital. Although none of these entities was a unit of
general government or special district, all were able to
file for bankruptcy under Chapter 9 because of the special
"governmental instrumentality" clause in the federal
The Management Institute (TMI) was established by a
joint powers agreement established between several municipalities
in Alameda County, CA, in the early 1970s.
Its purpose was to provide instruction to the employees
of local area governments in a broad range of technical
and administrative areas. Local governments in Alameda
County would contract with TMI to provide instruction
in specific areas and TMI, in turn, would hire
subcontractors to provide instructional materials and
personnel to teach the various classes.
Four factors were identified as being primarily responsible
for the financial problems that ultimately led
to TMI's bankruptcy: (1) the passage of Proposition 13,
(2) changes in the federal Comprehensive Training and
Employment Act (CETA), (3) a proviso in the original
authorization of TMI that limited its activities to the
training of public sector employees only and (4) poor
management on the part of TMI itself. The passage of
Prop 13 in 1978 put pressure on all units of local government
in California-including those in Alameda County-to
limit or reduce spending (see also the discussion
of San Jose School District above). As the restrictive
impact of Prop 13 became increasingly apparent to local
governments in the late 1970s, employee training such
as that provided by TMI was one of the first programs to
Concurrently, the reforms enacted during the reauthorization
of CETA in 1978 put additional restrictions on
the use of CETA funds received from the federal government.
These restrictions greatly reduced, if not entirely
eliminated, the employment of individuals eligible for
the type of training provided by TMI.8 Furthermore, the
fact that only public sector employees could be trained
by TMI, coupled with the greatly reduced funding for
training public sector employees, exacerbated an already
Finally, poor management in letting contracts and inadequate
financial control over accounts receivable
were at least equally responsible for the failure of TMI.
In the end, TMI was unable to pay its various subcontractors
for preparing materials and services rendered,
and was forced into bankruptcy. And, unlike any of the
other bankruptcy cases discussed in this study, TMI
ceased operations and its assets, cash and remaining
accounts receivable were apportioned among its
The Jersey City Medical Center
The Jersey City Medical Center was a municipal hospital
owned and operated by the City of Jersey City.
Three factors were responsible for its financial problems
and subsequent bankruptcy: (1) the changing demographic
composition of the clientele of the center, (2) the
revision of a state law so that cities could divest themselves
of municipal hospitals9 and (3) inadequate financial
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United States. Advisory Commission on Intergovernmental Relations. Bankruptcies, defaults, and other local government financial emergencies, book, March 1985; Washington, D.C.. (digital.library.unt.edu/ark:/67531/metadc1317/m1/25/: accessed January 20, 2019), University of North Texas Libraries, Digital Library, digital.library.unt.edu; crediting UNT Libraries Government Documents Department.