Five Chicago Suburbs Headed for Bankruptcy (More Illinois Cities Will Follow)

Courtesy of Mish.

Illinois House Bill 298 would allow Illinois municipalities to file for Chapter 9 bankruptcy. That bill is endorsed by Governor Bruce Rauner, and currently rests in the house rules committee.

As soon as Illinois passes Bill 298, a number of Illinois cities are highly likely to file bankruptcy as noted by Bond Buyer in Illinois’ Candidates for Municipal Bankruptcy.

If HB298 was enacted, which local governments might use the new bankruptcy option? To help answer this question, our team reviewed audited financial statements that all but the smallest municipalities must file. Most of these financial audits can be found on the state comptroller’s local government Finance Warehouse.

Among the indicators we considered were government-wide unrestricted net position and general fund balance. The first indicator shows the degree to which assets held by the government entity as a whole exceed its liabilities and are not locked up in buildings and other illiquid forms. The second indicator, general fund balance, focuses more narrowly on the government’s main fund – which is roughly analogous to an individual’s checking account. Low or negative general fund balances were cited in the bankruptcies of Vallejo and Stockton, California. It is worth noting that the five municipalities we identified are all located in Cook County, which also faces fiscal challenges. Our list does not include Chicago. Although that city’s financial struggles have made frequent headlines, several of its smaller suburbs appear to be in much greater fiscal distress. The five communities we identified are: Maywood, Sauk Village, Blue Island, Country Club Hills and Dalton.

Distress Summary

Maywood: Village of Maywood reported an unrestricted net position of -$47.4 million, and a general fund balance of -$8.2 million. While we found a number of jurisdictions with negative balances, these levels are quite pronounced for a relatively small municipality. With general fund revenues of only $23.3 million and government-wide revenues of $44.1 million, it will take the village a long time to eliminate these shortfalls.

Sauk Village: Sauk Village reported an unrestricted net position of negative $36.7 million – a very large negative position considering that the village had only $29.6 million in assets and government-wide revenues of $13.4 million. Sauk Village also showed a negative general fund balance and unusually high interest costs. The village’s $2.1 million of interest expense accounted for over