FACTBOX-U.S. municipal bankruptcies come in many flavors
Nov 30(Reuters) - The Chapter 9 bankruptcy procedures sometimes used to organize workouts for financially distressed U.S. local governments are a mash-up of federal and state laws that remain a rare choice by policymakers despite recent high-profile cases.
Since 1980, hard-pressed mayors, county executives and other leaders among some 90,0000 local governments across America have filed just 274 Chapter 9 cases, according to James Spiotto, partner at Chapman and Cutler LLP in Chicago.
"And about 25 percent of all Chapter 9 filings are dismissed or abandoned," Spiotto said. "They find other ways of solving their problems."
Since 1934, when the U.S. Congress authorized municipal bankruptcies amid waves of local government failures during the Great Depression, fewer than 700 Chapter 9 bankruptcy filings have been made.
By contrast, in California alone during 2010, there were 215,000 corporate and individual bankruptcies under other parts of federal bankruptcy law.
Although part of a national law, Chapter 9 is sharply limited by the 10th amendment of the U.S. Constitution apportioning power among the states and the federal government and takes different shapes, varying from state to state.
More than half the 50 U.S. states restrict, bar or do not allow Chapter 9 cases, which often turn on state laws and legal practices that vary from state to state.
Twenty-one states have no laws on local government bankruptcies and do not allow Chapter 9 filings, Spiotto said.
A big issuer of municipal bonds, Puerto Rico and other U.S. territories also cannot file Chapter 9 cases, he said.
A dozen states, which themselves are co-sovereigns with the federal government and are ineligible for Chapter 9 filings, have laws allowing their municipalities to turn to Chapter 9 in crisis, according to Spiotto. These include Alabama, Texas, Minnesota and Missouri, as well as Arizona, Arkansas, Idaho and Oklahoma. Others are Montana, Nebraska, Washington and South Carolina.
Another 12, including California, Florida and New York, authorize Chapter 9 cases but set conditions for local governments looking to file, such as needing clearance from a state official.
Colorado, Oregon and Illinois limit Chapter 9 filings, and both Georgia and Iowa, with some very rare exceptions that have not been used since 1954, specifically ban Chapter 9.
(Reporting By Michael Connor in Miami and Tim Reid in Los Angeles; Editing by Dan Grebler)