Bridgeport, Conn., could capitalize on a gap in the federal Bankruptcy Code that allows a municipality broad powers to overhaul labor agreements during bankruptcy proceedings, a bankruptcy lawyer said yesterday.
Jeffrey Cohen, a lawyer at the Denver-based law firm of Cohen & Herm, said Chapter 9 of the bankruptcy code, which allows for a municipality's financial restructuring, permits a government or other municipal body to recast collective bargaining agreements with its employees.
Congress amended Chapter 11, the chapter allowing a corporation to restructure, in the mid-1980s to make it more difficult for a debtor to back out of labor agreements.
"When Continental Airlines first filed [for Chapter 11 bankruptcy] in 1984," Mr. Cohen said, "it was relatively easy to reject collective bargaining agreements. Now it's a lot more difficult."
But while Congress amended Chapter 11, he said, the lawmakers overlooked the infrequently used Chapter 9. "Congress just didn't think about it," he said. "No cities were going under at that time."
Lawyers for the city of Bridgeport, he said, could be planning to use the legal lacuna to the city's advantage. "Perhaps Bridgeport is really playing hardball with its unions, taking advantage of this gap," Mr. Cohen said.
Bridgeport's bankruptcy filing last week followed the city's failure to gain adequate concessions from unions to balance the coming year's budget, sources familiar with the situation said yesterday.
Rather than debt service on the city's outstanding bonds or vendor debts, employee pensions and labor agreements appear most vulnerable to any bankruptcy court proceedings that may ensue.
It is not even clear whether the U.S. Bankruptcy Court will accept Bridgeport's petition for protection from creditors. Richard Blumenthal, Connecticut's attorney general, plans to file a motion with the court this week calling for dismissal of the petition.
Another area of uncertainty is just what Chapter 9 would allow Bridgeport if the cash-starved city's petition were accepted by the court.
Richard D. Zeisler, a lawyer with the Bridgeport law firm of Zeisler & Zeisler, which is representing the city, could not be reached for comment yesterday.
Over the past several months, the city found itself mired in fruitless negotiations with union officials, attempting to craft an agreement that would help Bridgeport balance its books for the coming fiscal year. The city has been wrestling with a projected gap in a budget of about $300 million.
But the negotiations fell apart, as the size of the city's gap and the value of concessions offered by union negotiators sparked debate.
"They only have a $12 million gap," said Wayne Gilbert, a spokesman for the National Association of Government Employees, referring to the city. "We offered them $17.1 million [in concessions], and they turned their back on us."
Bridgeport officials, however, said the union package would amount only to $2 million in concessions, according to Donald A. Kirshbaum, executive director of the Bridgeport Financial Review Board.
Most of the city's existing labor contracts expire by the June 30 end of the fiscal year, although existing agreements stay in place until the city adopts new ones.
Many of Bridgeport's existing labor contracts contain lavish benefit packages for which city coffers can no longer provide. Most of those programs result from Bridgeport's previous attempts at cost-cutting, which are proving more expensive in the long run, according to Mr. Kirshbaum.
"Over the last two decades as the city was negotiating with unions, instead of giving pay increases, they gave benefit increases," he explained. "Now those benefits are coming back and starting to cost real dollars."
Among the more expensive benefits are health insurance policies without deductibles, Mr. Kirshbaum said. In addition, the city has unfunded pension liabilities of $346 million.
"Wages are not the problem," Mr. Kirshbaum said. "Health benefits are about the most generous anybody has ever seen. The sick-leave policy, the vacation policy, those are the places where they need to renegotiate."
Bridgeport's board of aldermen was expected to vote last night on a fiscal 1992 revenue plan. A city alderman predicted a 4.9 million increase would pass. The Bridgeport Financial Review Board last week ordered the city to increase taxes by 10.9 mills, or 18%.
Mayor Mary C. Moran, who announced the filing last Thursday night, has refused to raise taxes that much. At a mill rate of 60.3, or $60.30 per $1,000 of assessed value, Bridgeport's property tax levy already dwarfs others in the state, she says.