The National League of Cities supports the passage of Rep. George Gekas' Bankruptcy Reform Act of 1999. The bill would lessen the burden that unpaid property taxes have on cities and towns.

The tax provisions in the Bankruptcy Reform Act of 1999 would mean that owed funds recovered from property taxes by those filing for bankruptcy would be carried over into local education programs. Many local jurisdictions use revenues derived from property taxes or "ad valorem" taxes for education budget purposes and suffer when taxes are delinquent or never paid due to the current federal bankruptcy code. This bill would aid local governments in recovering losses by giving fair access to assets of bankruptcy estates and will prevent debtors from using the Bankruptcy Code to skirt the law.

It is estimated that about 15% of the education budget in the City of Houston, Texas is lost due to personal and corporate bankruptcy filings. In Dallas, six cases of bankruptcy have accounted for $449,593 in lost revenue, according to Jayne Morrell, Tax Assessor / Collector for the City of Dallas, Texas. Virtually every state has experienced a revenue shortfall as a result of the way the federal bankruptcy law is currently written. Florida cities have also has attributed losses to the law, because judges have ordered cities to pay large refunds of property taxes paid years earlier.

The tax revisions included in Rep. Gekas' bill are clarifications to the Bankruptcy Code that would assist state and local governments and do NOT make any changes to the Internal Revenue Code. These changes protect taxpayers by giving states and municipalities a more appropriate priority for debt settlement. If local governments do not get relief from loopholes in the bankruptcy code, then local taxes may increase to support the losses attributable to bankruptcy filers.

For more information, contact:
Kristin Cormier, Legislative Counsel
National League of Cities
(202) 626-3020