LOUISVILLE, Ky. (WDRB) – The small city of Hillview in Bullitt County has filed for bankruptcy, seeking to reorganize more than $50 million in debt.
The filing for Chapter 9 bankruptcy, which applies solely to municipalities, was made Thursday in U.S. Bankruptcy Court in Louisville. Hillview, population 8,000, is the first U.S. city to declare bankruptcy since Detroit in July 2013, federal court records show.
The largest claim against the city is $11.4 million from Truck America Training of Shepherdsville as part of a court judgment, according to a list of creditors filed with the court.
That case involved a land dispute that dates to 2002, when the city council approved a "lease-purchase offer" for 40 acres, according to a summary of the case included in a 2014 Kentucky Court of Appeals ruling.
"We appealed it as far as we could appeal it to the Kentucky Supreme Court," said Hillview city attorney Tammy Baker, "The Supreme Court denied review so the judgement stands."
Truck America claimed in court filings that Hillview failed to transfer title to the land, and a Bullitt Circuit Court found that the city breached its contract with the company. A jury awarded damages during a 2006 trial, and the appeals court upheld that decision last year.
Analysts at Standard & Poor's had lowered the city's credit rating four levels earlier this year, from A- to BB+, citing the appeals court ruling and doubts made by the city's auditor about "Hillview's ability to continue."
The money owed to Truck America -- $11.4 million -- was adding interest at a rate of 12 percent annually and is not covered by the city's insurance, according to S&P. Hillview had $960,713 in cash at the end of the 2014 fiscal year.
"That really was the big push for bankruptcy and we need to cut the interest off," Baker said. "We need to stop, get our numbers and work on our plan to pay that judgment."
Hillview has debts between $50 million to $100 million, according to Thursday's bankruptcy filing. Other large creditors include The Bank of New York Mellon Trust Co., which is owed $1.39 million; the Kentucky Bond Corp. of Frankfort, which is owed $1.79 million; and Mago Construction Co. of Bardstown, owed $100,000.
In addition, the city owes LG&E $11,184, the Kentucky League of Cities $10,933 and Salt River Electric $1,368.
The Hillview City Council voted 6-0 to file bankruptcy at a meeting Aug. 17, deciding that a court-ordered reorganization “would be in the best interests of the City, its creditors, and most importantly, its citizens,” according to a resolution included with the filing.
"Services are going to remain in place," Baker said. "The reason the city did this is because they don't want to cut services. They don't want to raise taxes to an astronomical rate. That was the reason for filing the bankruptcy."
In a statement,Truck America Training attorney Brian H. Meldrum said the company made "multiple, fair, settlement offers to resolve the judgment for large discounts, all of which were refused. This includes an offer made by Truck America (Wednesday) night to accept approximately 40 cents on the dollar, most of which could have been bonded and paid over time, to settle the judgment."
Meldrum said it will become clear in the bankruptcy case that Hillview could have "easily" paid the settlement without "major tax increases or severe cost-cutting measures."
"That Hillview’s leaders opted to become the first city to file Chapter 9 in Kentucky history, rather than settling with Truck America at a steep discount, is reckless and short-sighted," he said.
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