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East St. Louis City budget director calls for city to file bankruptcy, groups push for bankruptcy reform

By Anna Aguillard | Nov 6, 2015

East St. Louis budget director Egzabia Bennett has recently called on the city to file for bankruptcy, the third time in two years he has made such a recommendation.  

“While this process may take some time, the city needs to accept the fact that we have contracts and liabilities that we cannot afford, and that we cannot realistically project any new concrete revenues in the near future that would relieve the burden of clearing at least a $7.5 million deficit in which $2.7 million is what’s needed to bring current expenditures in line with current revenues,” Bennett wrote in a memo to city leaders.  

Illinois is one of a few states in the country where cities have very limited authority to file directly for bankruptcy. In March, the Illinois House of Representatives held a hearing on a proposed change that would authorize local governments to file for bankruptcy, but the proposal has not moved forward.

At the hearing, legislators also discussed alternate options, including preventative measures to bankruptcy, such as the creation of a protection authority to equip cities with the assistance and expertise necessary to resolve debt without filing for bankruptcy.

When East St. Louis faced similar financial problems more than two decades ago, it was given such assistance. In1990, the East St. Louis Financial Advisory Authority was created. It diagnosed the city's problems and created short and long-term remedies, and the city ultimately balanced its budgets for 10 consecutive years.

After the city paid its debt in December of 2013, the Authority ceased to exist.

The following year, Bennett recommended the city file for bankruptcy. The timeline is very telling for those who pushed for protection authorities in March, like Laurence Msall, president of the Civic Federation. 

“Illinois doesn’t really have a mechanism for bankruptcy protection or a state oversight role in helping governments avoid bankruptcy, or take action prior to filing for bankruptcy,” Msall said.   

But according to Msall, all municipalities, not just East St. Louis, would benefit from protection authorities.

“Our recommendation is to create a state municipal protection authority which would be available whenever municipalities find themselves in financial distress. They can then access the expertise of the state,” said Msall.

Msall proposes a standing state board, funded by the state, similar to that of Michigan and other states. The board would help by analyzing their tax efforts, expenditures, and debts, and bring “sophisticated financial assistance” to cities facing financial distress.

The proposal was introduced and discussed in March, but according to Msall, “didn’t move very far or fast in the general assembly.”

However, East St. Louis’s financial distress points to larger problems in the state’s financial system, said Msall.

“There are a number of issues that the state of Illinois could do to make it much more transparent for what, if any, process there could be for municipality bankruptcy in Illinois,” said Msall.

“The Civic Federation doesn’t advocate for bankruptcy, or bankruptcy protection for our local governments, but we do believe the process by which the state is involved could be much more transparent and much easier to access,” he said.

Bennett declined to discuss reasons for pushing for bankruptcy this year.

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