Richard Blementhal, Connecticut's attorney general, yesterday filed an objection to Bridgeport's Chapter 9 bankruptcy petition, charging the city with running afoul of state and federal laws.
Although Mr. Blumenthal says in a news release that he has "strong sympathy for the city's plight," he also says "bankruptcy is simply not a solution that is legally permissible."
Mr. Blumenthal also contends that filing for bankruptcy will only aggravate Bridgeport's fiscal problems.
Bankruptcy "ultimately could hurt the people of Bridgeport and the entire state, by undermining the city's credit rating and raising the costs of borrowing, or barring [Bridgeport] entirely from the credit markets,' the attorney general says.
Under the 1988 legislation that established a state oversight board for the financially troubled city, Bridgeport has no right to seek the protection of U.S. bankruptcy courts without approval from the state, the attorney general says.
While the oversight legislation allows Bridgeport no right to file, according to the attorney general, it is unclear whether other cities and towns in Connecticut not under the control of an oversight board could declare bankruptcy.
The legislature considered a bill earlier this year that would have provided guidelines for state oversight of "distressed municipalities." The legislature is now locked in a special session to hammer out a budget for fiscal 1992. According to one source, lawmakers still might pass distressed municipalities legislation in special session balloting.
Mr. Blumenthal's complaint relies on the Chapter 9 stipulation that a municipality must be "generally authorized" by state law "or by a governmental officer or organization empowered by state law," to enter bankruptcy.
"The city of Bridgeport is not generally authorized to be a debtor under state law," Mr. Blumenthal says in his complaint. Bridgeport, according to the news release, is an unusual case because it under control of the review board.
In addition, Mr. Blumenthal cites bond counsel opinion to the effect that any Chapter 9 filing in the state would require a specific statute passed by the state legislature.
Bankruptcy court judges in other cases have held, however, that a general municipal powers law, such as one that exists in Connecticut, provides sufficient legal footing for a bankruptcy filing.
The financial review board twice voted to deny the city the right to seek shelter in bankruptcy court: in January, when Mayor Mary C. Moran first mentioned the possibility of filing, and again on June 7, the day after she announced the city's filing.
The board is expected to meet today at 3:00 p.m. to discuss how to force Bridgeport to comply with a fiscal 1992 budget that includes an 18% tax increase.
Bridgeport's attorney for the bankruptcy filing, Richard D. Zeisler, could not be reached for comment yesterday.