In a move rare in the United States and perhaps unprecedented in Idaho, Boise County is filing for federal protection against a multimillion dollar judgment.

“This was not our first option. This was our last option,” said Jamie Anderson, chairwoman of the three-member Boise County Board of Commissioners. “This protects us so we can continue to operate.”

Chapter 9 protection, from a section of federal code expressly for financially distressed municipalities, means that creditors can’t collect while the county is developing a plan for reorganizing its debts.

Dan Chadwick, an attorney and executive director of the Idaho Association of Counties, said he is not aware of any other county, city or taxing district in Idaho ever filing for bankruptcy. He’s been with the association for 20 years and before that was at the Attorney General’s Office for 10 years, he said.

Bill Nichols, McCall’s city attorney, said he is not aware of any other Chapter 9 filings in Idaho, either.

“I don’t think there has been anyone in the Northwest that has used this, other than an irrigation district in the state of Washington,” Nichols said.

Nichols’ firm began representing McCall after a federal jury determined it owed a contractor $6.2 million. McCall officials considered bankruptcy but opted against it, Mayor Don Bailey told the Idaho Statesman in December.

The mayor said city services were not curtailed during the financial ordeal, but residents are paying off the city’s debt over a 20-year period. Their sewer/water fees went up by $5 to $6 a month, Bailey said.

JUST EIGHT CHAPTER 9 FILINGSPER YEAR IN U.S.

James Spiotto, an expert on Chapter 9 bankruptcies, told The Bond Buyer in a Tuesday article that there have been about eight municipal bankruptcies per year in the U.S. for the past four decades. Among the most famous cases: Orange County, Calif., in 1994 and Vallejo, Calif., in 2008.

Spiotto said one reason they are rare is because Chapter 9 provides no financing.

“If you can’t pay for your municipal services because of illiquidity, Chapter 9 doesn’t provide any more money to you,” Spiotto told The Bond Buyer.

Most local governments that have filed bankruptcy have done so because of massive bond debt, of which Anderson said Boise County has none.

BANKRUPTCY COMES ON HEELS OF JUDGMENT

A federal jury in December found that Boise County violated the federal Fair Housing Act in its handling of a developer’s proposal to build a 72-bed residential treatment facility for teens.

The jury awarded the development firm Oaas Laney $4 million, plus attorneys’ fees, which the county says total about $1.4 million. Boise County has an operating budget of about $9.4 million.

In January, the county appealed the decision in the 9th Circuit Court of Appeals. Anderson and the county attorneys also met several times with Oaas Laney’s attorneys, but were unable to reach an agreement on the payment of the judgment.

Boise County now has several law firms representing it: Brassey Wetherell & Crawford is handling the Alamar Ranch litigation; Moore Smith Buxton & Turcke is counseling commissioners on public financing; and D. Blair Clark is advising the county on Chapter 9.

The county sought, but did not receive, benefits from its insurer, the Idaho Counties Risk Management Program. When the county sued, claiming breach of contract and damages in excess of $10,000 for attorneys’ fees, ICRMP won. The county appealed that decision to the Idaho Supreme Court.

PLAINTIFF’S ATTORNEY: FILING IN ‘BAD FAITH’

Anderson declined to discuss the county’s finances in detail, including if there are any reserve, emergency or other funds that could go toward paying the judgment.

“We have dedicated funds to meet statutory requirements,” she said of county services for the indigent, road maintenance, jail and court operations, and solid waste programs.

“We have a duty to the citizens to protect ourselves,” Anderson said.

Wade Woodard, an attorney with the Boise law firm representing Laney, said the firm would be filing a motion to dismiss.

“We believe it was filed in bad faith,” Woodard said. He declined to elaborate.
Source: Idaho Statesman