LOUISVILLE, Ky. (AP) — A suburban city near Louisville has filed for bankruptcy, crippled by an $11.4 million jury verdict — nearly four times the city's budget — in a dispute over land and money with a truck-driving school.
Hillview, a town of about 9,000 people south of Louisville, entered its Chapter 9 bankruptcy filing Thursday in federal court.
The filing is meant to keep the city from digging a deeper hole. It stops interest from being applied to the multimillion-dollar judgment as city leaders look to resolve the town's financial problems, City Attorney Tammy Baker said Friday.
City services, including police, will not suffer, and the city will keep paying its bills and employees while in bankruptcy court, she said. The city's annual budget is about $3 million.
The town's obligation from the verdict has grown to about $15 million with interest, Baker said. The city appealed the 2012 judgment to no avail.
"This was a last resort," Baker said of the bankruptcy filing. "They absolutely did not want to file bankruptcy. That interest is just killing the city."
A Chapter 9 bankruptcy filing allows for the refinancing of a municipality's finances. It gives municipalities a breathing spell from creditors while formulating a plan aimed at adjusting debts. The plan has to be approved by a judge, with input from creditors.
Kentucky League of Cities officials said they were unaware of another bankruptcy filing by a city in the state.
Nationwide, 54 cities, towns and counties have filed for Chapter 9 bankruptcy protection since 1980, said James Spiotto, a managing director at Chapman Strategic Advisors, which advises on financial restructuring.
Hillview estimates liabilities of $50 million to $100 million, with assets of between $1 million and $10 million, Baker said.
The city's biggest creditor by far is Truck America Training, the truck-driving school that won the 2012 judgment. The school's lead attorney at trial was Andy Beshear, now the Democratic nominee in this year's election for Kentucky attorney general.
The city was found responsible for losses Truck America suffered as a result of not being able to fully operate the school on a disputed 40-acre tract it had a contract to buy from the city, The Courier-Journal reported. The school was looking to expand into training people to operate heavy equipment. The city contended the school did not make required lease payments in connection with the contract, the newspaper reported.
"If not for the judgment, the city would be fine," Baker said.
Debby Mobley, Truck America's operations manager, said it had to sell equipment and make other cutbacks to stay in business amid the dispute.
Mobley said she's disappointed the city opted for bankruptcy court.
"I have made numerous settlement offers to the city that they could afford," she said. "But so far the message they're sending me back is they'd rather declare bankruptcy."
In its last offer, the school proposed that the city pay $6.2 million, Mobley said. The offer called for $5.2 million upfront, with $1 million paid over time.
Hillview could have paid for the settlement through bonding resulting in manageable payments without "any drastic measures," she said.
Baker said the city's bankruptcy filing is not a maneuver to avoid paying the judgment and earmarked $100,000 in its budget to pay down the judgment. That is merely a "placeholder" until city leaders come up with a payment plan, she said.