Gov. William F. Weld of Massachusetts yesterday filed legislation that would install a receiver to govern the financial affairs of Chelsea, one of the state's poorest cities.
The move means the city will not seek protection from creditors under Chapter 9, even though it meets the federal Bankruptcy Code's insolvency criteria.
To use the Bankruptcy Code, a municipality must prove, among other things, that it is not paying its debts as they come due or that it is unable to do so. Bridgeport, Conn., which on June 6 became the largest municipality ever to file, saw its bankruptcy petition rejected last month by a judge who ruled the city was not insolvent.
Chelsea, however, yesterday found itself indisputably unable to pay its debts.
What fully choked the city's ability to pay was a vote by the its fiscal oversight board Wednesday night, rejecting a $4 million one-month budget. "We can't make any expenditures at all," Chelsea's mayor, John Brennan, said yesterday.
The city, with annual spending of about $40 million, also faces a deficit of $9.2 million. It has $1.3 million in unpaid bills, Mayor Brennan said.
Gov. Weld's intervention helped Mayor Brennan, who had long favored receivership but could not convince city aldermen to support him and file the necessary home-rule petition with the state legislature.
The mayor said he saw the appointment of a receivership as preferable to a bankruptcy filing. "I don't particularly care for that phraseology, the bankruptcy," the mayor said. "Any terminology that uses the word bankruptcy sends a message that some vendors may not get paid."
But receivership may send some messages, too, observes say.
"The question in everybody's mind is what kinds of powers will the receivership have?" said Sheila Cheimets, executive director of the Massachusetts Municipal Association. She said that Chelsea could set a precedent for roughly a dozen of the 351 cities and towns in Massachusetts, adding, "I think Chelsea is different only in degree, not in kind."
The primary culprit being blamed for the poor shape of several municipalities in the state is the 1980 ballot initiative known as Proposition 2 1/2, which continues to strain city budgets by limiting annual property tax increases to a rate well below inflation. At the same time, aid from the state has been shrinking.
Under the legislation filed by Gov. Weld, Chelsea's receiver would be a fiscal czar, ruling by edict on all budgetary matters. "He's going to have a wide array of powers," said Jordan St. John, a spokesman for Gov. Weld. The receiver will control anything "up to and including bonding authority, renegotiation of contracts, selling of assets, and firing power," Mr. St. John added. He emphasized that the legislation will apply only to Chelsea.
At present, Chelsea has no bonds outstanding. Its last debt matured in 1989, according to Joan Dougherty, an assistant vice president and manager at Moody's Investors Service. She said the bonds were rated Ba1.
Mr. St. John said the package would not entail any additional aid from the state, which made a no-interest loan of $5 million to Chelsea in the mid-1980s to help the city balance its budget. It was then that Massachusetts created the financial control board to monitor the city's finances.
Mr. St. John said Gov. Weld opposed giving additional aid to Chelsea because of "a pattern of short-term bailouts that haven't solved any of the problems that the city has had over the past decade."
As Gov. Weld filed the legislation, he called on lawmakers in the state's General Court to act by the end of the week. Observers said the governor sought quick action in order to limit delays in the start of the school year for Chelsea's 3,700 students. "He would not like to hold the children hostage" to the crisis, said Colin Riley, a spokesman for Boston University, which manages the city's school system.
Yesterday, the city's four elementary schools and its high school were closed, although under normal circumstances, teachers would have been at work preparing for today's scheduled opening of schools.
As it stands now, the schools will probably open to students on Wednesday of next week, according to Mr. Riley.
City workers including fire-fighters and police officers were on the job yesterday, however, sources said. "I've asked everybody to come to work, and hopefully they will," Mayor Brennan said.