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West Haven confronts debt reorganization.

The city of West Haven, Conn. faces the critical choice of how much responsibility it wishes to take to control its own destiny this week. The city confronts an April 15 deadline to heaoff a potential default of some $12.7 million in notes.

West Haven, a suburb of 54,000 outside of New Haven, has an accumulated deficit in excess of $17 million--making it one of the first cities in the nation to be insolvent.

By April 15, West Haven will have to determine whether it wishes to file for federal bankruptcy protection from its creditors and to reorganize its debts and settle on a recovery plan in which it is a key player at the table, or whether to accept broad state preemption of municipal authority under emergency legislation signed into law by Gov. Lowell Weicker last week.

Under the state legislation, in return for a $35 million loan guarantee by the state of Connecticut, the city would be for to give up its right to file for municipal bankruptcy, its control of taxes, collective bargaining, and most municipal spending. Those responsibilities would be taken over by a seven member board made up of six gubernatorial appoointees and West Haven Mayor Richard Borer.

In addition, the state board would have the power to reject proposed borrowings by the city and to intercept property taxes to pay for debt service instead of meeting other costs and obligations of the city. It could set property tax rates without any consultation with the city's 13 councilmembers.

While the Bridgeport, Conn. became one of the first major cities in the nation to file for municipal protection last year, a federal judge had ruled that Bridgeport was not sufficiently insolvent to be eligible for the protection provided by the federal law.

The legislation is part of a pattern of state efforts since the Bridgeport filing to preempt municipal authority and to overturn the federal court decision in the Bridgeport case clearly stating that cities in Connecticut have the legal authority to seek bankruptcy protection without the permission of the governor.

In the case of Bridgeport, a similar state board had ordered the city to increase property taxes--already twice as high as the surrounding suburbs--by 18 percent to balance the city's budget. Fearing that such a move would be counterproductive, the city instead sought bankruptcy protection to insure its rights to be a part of any long term debt reorganization and to have a key role in determining its own future.

This year, Connecticut has also proposed a Municipal Financial Planning and Assistance Act in the state's General Assembly to remove the authority and ability of any city or town in Connecticut to file for bankruptcy protection. That bill, successfully opposed in committee by the Connecticut Conference of Municipalities, could still be brought up on the floor of the General Assembly before the legislature adjourns.

At the signing ceremony for the West Haven legislation, Weicker commented that he would try to keep the state from interfering with the city's rights to run its own affairs.
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Author:Shafroth, Frank
Publication:Nation's Cities Weekly
Date:Apr 13, 1992
Words:511
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