Hillview, Ky., a town of roughly 8,000 located 13 miles south of Louisville, filed for bankruptcy late last week, largely the result of a contract dispute with local company, Truck America Training, over a land sale.
Hillview is the first city to file for bankruptcy since Detroit did so two years ago. Only 54 cities, towns and counties have sought bankruptcy protection from creditors since 1980, according to James Spiotto, managing director at Chapman Strategic Advisors, which advises on financial restructuring. The Chapter 9 filing is just the third in 2015, following a hospital in Oklahoma and a special district in California. Standard & Poors in February lowered its rating to junk after the city unsuccessfully appealed a court ruling ordering it to pay $11.4 million in damages to the company.
Town officials estimate Hillview's liabilities are as high as $100 million with assets of approximately $10 million, according to the filing in U.S. Bankruptcy Court in Louisville. Truck America is the citys largest unsecured creditor.City attorney Tammy Baker said the filing was a difficult decision for city council members. Truck America won a lawsuit against the city related to a 2002 land dispute. The company had built a truck-driving school on the 40-acre parcel it was leasing from the city and had a contract to buy the land from the city after another dispute on the property cleared up.
The city then declined to transfer the land to the school because it had another potential buyer and in 2005 Truck America was evicted from the land, forcing it to relocate and lease two smaller parcels.
Truck America Training sued Hillview for breach of contract and was awarded an $11.4 million judgment. Interest accrued as appeals were taking place, and the town currently owes more than $15 million. The interest from the court judgment is more than $3,700 a day, Baker said.
Cities and counties seldom turn to federal court to escape their debts but Moodys Investors Service in a recent report said the practice is not as taboo as it once was as governments deal with ongoing financial stress. Mostly, as the economy has recovered, tax revenues have followed and helped ease the strain on local governments.
Hillview last sold bonds in 2010 when it issued $1.4 million of general-obligation debt, according to data compiled by Bloomberg.