Fiscal Distress in Kentucky Counties: What's Next?

Fiscal Distress in Kentucky Counties: What’s Next?

December 18, 2017

Laura Day DelCotto ©2017

The 2016 US Census Report was sourced in the recent Lexington Herald- Leader article, reporting that Kentucky has the distinction of containing about 30% of the Top 30 poorest counties in the United States.   This really shouldn’t come as any surprise to anyone who keeps up with the fiscal affairs of our state and local governments.

The 9 named Kentucky counties struggling the most, although certainly not alone, are the following: Bell, Clay, Harlan, Knott, Knox, Lee, Martin, McCreary and Owsley counties.  Sizeable and volatile decreases in tax based revenues make it exceedingly difficult to react quickly enough, and debt service obligations do not go away or magically float down to smaller payments.  Total labor costs are high in all local and statewide municipal settings, and that is before even looking at the pension situation.   Debt costs are escalating, and creating a squeeze on the fundamental services needed to support health, safety and welfare of citizens.

No one comes to our offices with the statement that “I want to file bankruptcy.” In fact, it is just the opposite: individuals and companies are so deeply stressed about fiscal distress that they often wait too long, until things have gotten so bad that the choices are difficult, crisis-based, and limited.

Chapter 9 municipal rehabilitation through the federal bankruptcy courts are still rare. I recently heard a speaker refer to them as the “wild west” of bankruptcy law, because so many issues are still untested under nation-wide case law.   Kentucky (unlike some states) permits Kentucky counties to file for chapter 9 rehabilitation, in order to restructure and work through these difficult situations.  The Kentucky Department of Local Government (DLG) must be involved on the front end, before any filing.

I have learned much about chapter 9 over the last couple of years, and it is truly different from other types of bankruptcy filings, for many reasons.  What goes around comes around: filings during the Depression may still be solid law for what happens today.  If you are an elected official or a concerned taxpayer, please don’t wait too long for a thoughtful exploration of all options.

About DelCotto Law Group

DelCotto Law Group is Kentucky’s asset protection law firm known for its commitment to the lifetime success of its clients. With offices located in Lexington, Louisville and Danville, DLG serves Kentuckians with complicated financial matters, especially in the areas of bankruptcy, complex litigation, and estate planning. For more information about chapter 9 or DelCotto Law Group, please call (859) 231-5800 or email