Borrowing from Peter to pay Paul - Quartzsite's growing debt

Don't expect Town mismanager Alex Taft to pull a fiscal rabbit out of her hat. It's a given that she doesn't even have a card left up her sleeve. Previous comments posted on this blog affirm assertions that HURF funds were illegally supplanted just to make payroll, among other financial slight of hand and smoke and mirrors tricks. 

The incorporated municipality of Quartzsite is almost 5 million dollars in debt. The fiscal year will be over on June 30th. A new Taft orchestrated budget is on the agenda and will surely be passed at Tuesday evening's regular meeting of the Common Council. Friday's budget work session only proved once again the unwillingness of Town leaders to work with Mayor Foster.

Since our Councilpersons have been consistently ignorant of the law, I think this might be a good time to bring a timely suggestion to everyone's attention...it's just too bad that the previous incarnation of the Town Council hired Pam Walsma, an estate lawyer, and not a lawyer that specializes in municipal law. A quick internet search reveals Walsma's frantic emails asking other lawyers for advice. Clearly, she is in way over her head!

Residents should support the Citizen's Coalition and Dean Taylor's proposal to hire a competent municipal lawyer that will actually represent the people. I suggest that one of the first things evaluated is the potential restructuring of Quartzsite's debt through municipal bankruptcy. This is a viable option that has not been adequately explored in Arizona,  from a legal perspective. Actually, except for Mayor Foster who has mentioned investigating this possibility, I doubt that any of our leaders are even aware of this potential solution. 

Our Nation has set a record for Federal debt.. Arizona is broke. The County is broke and until Holly Irwin and the other County Supervisors deal with the Yakima lawsuit, La Paz will only go further in debt, dragging Quartzsite down too. One thing is for certain, Quartzsite cannot continue the practices that put it's future in such a precarious position. Just looking for "new sources of revenue" like writing more speeding tickets as outlined by Police Chief Gilbert in a recent grant proposal will not be enough to offset the drying up of available funds at the state and Federal level.

So, in the interest of saving the Town, I'm going to do the work that Taft, Walsma, and the "Council" should have done months ago. Here's an overview of municipal bankruptcy, yes the links are "hot":

ARIZONA CONSTITUTION

Article 9 Section 8 - Local debt limits; assent of taxpayers

8. Local debt limits; assent of taxpayers
Section 8. (1) No county, city, town, school district, or other municipal corporation shall for any purpose become indebted in any manner to an amount exceeding six per centum of the taxable property in such county, city, town, school district, or other municipal corporation, without the assent of a majority of the property taxpayers, who must also in all respects be qualified electors, therein voting at an election provided by law to be held for that purpose, the value of the taxable property therein to be ascertained by the last assessment for state and county purposes, previous to incurring such indebtedness; except, that in incorporated cities and towns assessments shall be taken from the last assessment for city or town purposes; provided, that under no circumstances shall any county or school district become indebted to an amount exceeding fifteen per centum of such taxable property, as shown by the last assessment roll thereof; and provided further, that any incorporated city or town, with such assent, may be allowed to become indebted to a larger amount, but not exceeding twenty per centum additional, for supplying such city or town with water, artificial light, or sewers, when the works for supplying such water, light, or sewers are or shall be owned and controlled by the municipality, and for the acquisition and development by the incorporated city or town of land or interests therein for open space preserves, parks, playgrounds and recreational facilities.

So, if it became necessary, can Quartzsite, AZ declare bankruptcy under the Federal Bankruptcy Code?

Yes, municipalities, defined as a "political subdivision or public agency or instrumentality of a state", are eligible for chapter 9. A municipality must satisfy four threshold requirements in order to obtain chapter 9 relief:

1. Have specific state authorization to be a debtor under chapter 9.
2. Be insolvent.
3. Desire to effect a plan to adjust its debts.
4. Must satisfy one of four alternatives: 
a. Has obtained the consent of at least a majority in amount of impaired claimholders under the proposed plan; or
b. Has negotiated in good faith but has failed to reach any agreement with a majority of the impaired claimholders under the proposed plan; or
c. Negotiation with such claimholders is impractical; or
d. Has a reasonable belief that a creditor may attempt to obtain a preference.

Federal Bankruptcy Law

11 U.S.C. 109. Who may be a debtor

(c) An entity may be a debtor under chapter 9 of this title if and only if such entity ---

 

(1) is a municipality;

 

(2) is specifically authorized, in its capacity as a municipality or by name, to be a debtor under such chapter by State law, or by a governmental officer or organization empowered by State law to authorize such entity to be a debtor under such chapter;

 

(3) is insolvent;

 

(4) desires to effect a plan to adjust such debts; and

 

(c)(5)(A) has obtained the agreement of creditors holding at least a majority in amount of the claims of each class that such entity intends to impair under a plan in a case under such chapter;

 

(B) has negotiated in good faith with creditors and has failed to obtain the agreement of creditors holding at least a majority in amount of the claims of each class that such entity intends to impair under a plan in a case under such chapter;

 

(C) is unable to negotiate with creditors because such negotiation is impracticable; or

 

(D) reasonably believes that a creditor may attempt to obtain a transfer that is avoidable under section 547 of this title.

A) Federal Bankruptcy Law Limits Judicial Interference into State and Municipal Governance Thereby Allowing the Municipal-Debtor to Maintain Control of Its Fiscal Affairs During Bankruptcy.

B) The State May Appoint a Trustee At Anytime.

C) A State May Control the Formulation of the Debt Readjustment Plan.

http://w3.uchastings.edu/plri/fal95tex/muniban.html

Arizona (ARIZ. REV. STAT. ANN. § 35-603) (1997)

Chapter 4	BANKRUPTCY OF TAXING DISTRICT
Article 1	In General
35-601	Definitions
35-602	Exercise of powers
35-603	Filing petition; payment of expenses
35-604	Resolution authorizing filing of petition and representation of district by attorne
35-605	Powers of taxing district
35-606	Resolution of district assenting to plan as prerequisite of final decree of court becoming effective.
35-607	Powers of district to consummate plan; issuance of refunding bonds; hearing upon resolution; notice.
35-608	Purpose of article

So, there you have it boys and girls. A viable solution to Quartzsite's insolvency. Unless you prefer more of the same...something that only benefits a select few.