BRIDGEPORT, Conn. -- In the second day of hearings on Connecticut's effort to block Bridgeport's use of the federal Bankruptcy Code, the focus remained on whether the city meets insolvency criteria for municipal debtors.
Some who oppose the city's bankruptcy bid contend the code requires a municipality to have missed payments to creditors. Attorneys for the city say the mere prospect of not being able to pay in the future is enough.
The city has said that so far it has met its financial obligations. But with its current union contracts and other agreements, the city says that in five years it will find itself with a $257 million budget gap -- close to its current fiscal year budget of $320 million.
Elliot Solomon, a lawyer for Hebb & Gitlin representing the state, yesterday questioned Bridgeport's financial projections. He said the $785 million of liabilities listed by the city in its June 6 bankruptcy petition indicate the use of different assumptions from those used in a 1990 Coopers & Lybrand report showing liabilities of only $315 million.
Mr. Solomon told Bridgeport Office of Policy and Management Director Mahesh Reddy that he should have checked with the accounting firm to try to explain why the liabilities had grown so dramatically.
"You didn't see fit when you were about to file the largest municipal bankruptcy petition in the history of this country to call your accountants and see why your numbers were so far apart?" Mr. Solomon asked.
Mr. Reddy said concerns over secrecy had prevented him from consulting the accounting firm.
Legal questions have arisen because of the nebulous language of the Bankruptcy Code, which says that a municipality is insolvent if it is "generally not paying its debts as they become due ... or unable to pay its debts as they become due."
Richard D. Zeisler, an attorney with the bankruptcy law firm of Zeisler & Seisler, and Bridgeport Attorney Barbara Brazzel-Massaro have called several top city officials, including Mr. Reddy, to the witness stand to bolster the city's predictions of imminent insolvency.
Mayor Mary C. Moran, the first witness, took the stand Tuesday. She was followed yesterday morning by the city's labor relations director, Herbert Grant; Director of Public Works Michael Hudzik, and police chief Thomas J. Sweeney.
Harry Elliott, a Hartford attorney representing city unions, citing a House report, said that Congress intended the insolvency to coincide with "the time at which it is important -- for example, at the time of the [bankruptcy] filing."
He said Bridgeport's bankruptcy filing is merely a political ply "designed to increase [the city's] apparent bargaining leverage" with its unions.
On Tuesday, Mr. Zeisler carefully questioned Mayor Moran in an attempt to show how she resorted to Chapter 9 only after repeated attempts to gain concessions from city workers failed.
Mr. Zeisler also tried to show that Mayor Moran had repeatedly sought help from Gov. Lowell P. Weicker Jr.
The first occasion Mayor Moran testified came shortly after the uproar in early January, when word of the mayor's interest in Chapter 9 became public. Mayor Moran said Gov. Weicker seemed to understand the city's problems: "He was very sympathetic."
But the notion of Connecticut's largest city filing for bankruptcy did not please the governor. "He was very angry that I had chosen to educate myself about Chapter 9," Mayor Moran said. "He looked at me and said there will be no more conversations about bankruptcy. In fact, he said, 'Get your act together in Bridgeport.'"
The mayor also said she "assured him that only were we going to get our act together, but that it was going to be done professionally and with qualified individuals."
She began by meeting with representatives of 13 city unions. "I felt that if the unions understood the severity of the problems, we could join hands and work together to save jobs," Mayor Moran said.
At the time, city financial officials were projecting a #38 million deficit for the coming fiscal year.
In April, the mayor again met with unions to discuss possible concessions. This time, Mayor Moran testified, only seven of the city's 13 unions showed up. Two other meetings with union officials followed by the end of the month. Then, on May 6, the city had to lay off 114 workers. "It was a very disappointing time, but we continued to meet," Mayor Moran said.
Another blow to the mayor's attempts to bandage the city's fiscal wounds came when state Treasurer Francisco L. Borges refused to go along with a proposed borrowing of $16 million from the municipal employee retirement fund, which his office oversees.
After meeting with union officials, the mayor said she had managed to gain "a verbal agreement" for policies to save Bridgeport $6.7 million. That agreement, however, changed into an offer that would save only $2.5 million, which the mayor called "totally unacceptable."
On May 29, the mayor said, she stormed Gov. Weicker's office, walking in without an appointment. "He said, 'All I can tell you, mayor, is raise taxes.' The meeting was very abrupt. It was over in five minutes. He was frustrated that probably he couldn't give us any help."
On May 30, the mayor decided to file for bankruptcy, she said.
In his cross-examination of Mayor Moran, Connecticut Attorney General Richard Blumenthal probed how long the mayor had actually been planning bankruptcy.
The attorney general attempted to show that the mayor had been secretly contemplating a filing since December and theat her petition was therefore not "in good faith."
Mayor Moran said she had merely been studying it as an option for a distressed city. "I did not have any intentions of filing," the mayor testified. "I did have intentions of educating myself." That she did, she said, by reading several pamphlets on the subject and through consultations with bankruptcy lawyers not including Zeisler & Zeisler.
Mr. Blumenthal also questioned why the mayor had not informed the members of the city common council until late on June 6, after she had filed her petition.
To that charge, the mayor replied that legislation pending in Hartford forced her to act in secrecy. The Distressed Municipalities Act, she said, would have prevented municipal bankruptcy filings in Connecticut without explicit permission from the state.
The bill had been slated to come before the Connecticut General Assembly in the session that ended June 5. Making the filing known before doing it could have given new impetus to the bill. But it languished and does not appear likely to be revived in the special session now under way to deal with the state's budget for the current fiscal year.
