KRS 66.400: Municipalities may go into bankruptcy -- Approval of state local debt

officer and state local finance officer required for county -- Municipality may

not file if delinquent in contributions to retirement system -- Liens on bonds or

leases -- Public property exempt from seizure -- Judgments against local

government -- Exceptions. (Effective April 1, 2021)

(1) As used in this section:

(a) "Bond" has the same meaning as in KRS 66.011 and is issued according to the

provisions of KRS 66.011 to 66.191;

(b) "Lease" has the same meaning as in KRS 65.940 and is entered into under the

provisions of KRS 65.940 to 65.956; and

(c) "Local government" has the same meaning as in KRS 44.001.

(2) (a) Except as otherwise provided by this section, any municipality as defined in

the United States Bankruptcy Code, 11 U.S.C. secs. 101 et seq., and acts

amendatory and supplementary thereto or acts extending the date of expiration

thereof, as the same may be amended or extended from time to time, may file

a petition for the composition of its debts and to do all things necessary to

comply with the provisions of the United States Bankruptcy Code.

(b) No county shall file a petition as provided in the United States Bankruptcy

Code unless the proposed plan is first approved by the state local debt officer

and the state local finance officer, as defined in KRS 68.001. No changes or

modifications shall be made in the plan of composition after the filing of the

petition without the approval of the state local debt officer and the s tate local

finance officer. The state local debt officer and the state local finance officer

shall approve or disapprove the proposed plan of composition or any changes

or modifications thereof under the same procedure and for the same reasons as

bonds are approved or disapproved under KRS 66.280 to 66.390.

(c) No municipality may file for bankruptcy protection under the United States

Bankruptcy Code if it is in default or is delinquent in the payment of

contributions due under KRS 78.510 to 78.852.

(3) (a) The revenues of a tax adopted:

1. According to KRS 66.111(1) for the payment of bonds shall be deemed

pledged for the payment of the principal of and the premium and interest

on the bonds; and

2. According to KRS 65.942(2) for the payment of a lease shall be deemed

pledged for the payment of the principal and interest portions of a lease

payment and any prepayment penalties on a lease;

whether or not the pledge is stated in the bonds, the lease, or in the

proceedings authorizing the bonds or the lease.

(b) The holders of all bonds issued and leases entered into shall have a first lien

on those tax revenues.

(c) There shall be a statutory lien on the tax revenues pledged in favor of the

holders of all bonds issued and leases entered into, effective by ope ration of

law, that shall apply to all outstanding bonds payable from taxes adopted

according to KRS 66.111(1) and leases payable from taxes adopted according

to KRS 65.942(2), without priority of one (1) bond or lease over another bond

or lease, regardles s of when the bonds were issued or the lease was entered

into.

(d) No filing need be made under the Uniform Commercial Code or otherwise to

perfect the lien on the tax revenues.

(e) The pledge of the tax shall constitute a sufficient appropriation, and the tax

revenues shall be applied as required by the pledge, without the requirement

for further appropriation.

(4) Amounts appropriated for the payment of any obligation that is subject to annual

renewal, including but not limited to leases entered into unde r the provisions of

KRS 58.010 to 58.205 or KRS 65.940 to 65.956, shall be deemed pledged for

payment according to subsection (3)(a) of this section, and the holders of all bonds

issued or leases entered into shall have a first lien on those appropriations

commencing on the date of the appropriation.

(5) (a) The public property of any local government, of every character and

description, used for government or public purposes, is exempt from seizure

by attachment, execution, or other legal process, except a s provided in

subsections (7) and (8) of this section.

(b) A local government's funds in the hands of its treasurer or a depository shall

not be subject to garnishment or other legal process, except as provided in

subsections (6), (7), and (8) of this section.

(6) (a) Except for judgments covered under KRS 65.2004, any local government

against which final judgment has been rendered for a claim that is not fully

covered by insurance may make a motion to the Circuit Court to enter an order

for the payment of money damages, in whole or in part, through a periodic

payment schedule for a period of time not to exceed ten (10) years.

(b) A court entering an order in response to a motion made by a local government

under paragraph (a) of this subsection shall conside r the ability of the local

government to pay the judgment without a substantial disruption to the

essential public services provided by the local government. The court shall

consider the following factors in evaluating the motion and in setting a

periodic payment schedule:

1. The funds available in the local government's current fiscal year and

other funds available to the local government to pay the damages in the

remainder of the local government's fiscal year during which the final

judgment was entered;

2. The total revenues reasonably expected to be collected by the local

government in subsequent fiscal years based upon the historical

collections in previous fiscal years;

3. The total expenses of the local government in subsequent years for the

costs ass ociated with the provision of essential public services, the

payment of debt service for the existing obligations of the local

government, and any other expenses reasonably necessary for the

efficient administration of the local government, including perso nnel,

operation, and maintenance costs associated with existing infrastructure,

and new costs which may be reasonably anticipated for the local

government; and

4. If the award for damages is an amount that exceeds twenty -five percent

(25%) of the total rev enues collected by the local government in the

immediately preceding fiscal year, the court may also consider any

revenue or debt financing options that are reasonably available to the

local government that could be employed to help satisfy the judgment.

(c) An order entered by the court establishing a periodic payment schedule shall

specify the total amount awarded, the amount of each payment, the interval

between payments, and the number of payments to be paid under the order.

(d) Any judgment paid pursua nt to the periodic payment schedule established

under this subsection shall bear interest accruing from the date final judgment

is entered at one-half (1/2) the interest rate provided by KRS 360.040.

(e) Upon petition to the court, the court may modify a p eriodic payment schedule

established in this subsection for good cause shown by the local government.

The modification may include changes to the amount of payments, the number

of payments, and the period of payments, but in no case shall an adjustment

pursuant to this paragraph alter the total amount of damages to be paid,

exclusive of interest, in the original order.

(7) Subject to the provisions of subsection (6) of this section, a court may enter an order

providing for the attachment, execution, garnish ment, or seizure by other legal

process of public property, including moneys, of a local government only upon a

finding that:

(a) The local government has failed to comply with an order, modified order, or

judgment entered by the court as provided by subse ction (6) of this section or

KRS 65.2004;

(b) After a period of twenty -four (24) months, the local government did not

petition the court to enter an order for the payment of money damages, in

whole or in part, through a periodic payment schedule as provide d by

subsection (6) of this section or KRS 65.2004 and has not paid in full the total

damages awarded under the judgment; or

(c) The judgment for damages was not of the type that permitted the court to enter

an award of periodic damages, and the local gove rnment has failed to pay the

damages due in full after the passage of twenty -four (24) months from the

entry of a final judgment.

(8) (a) Any order providing for the attachment, execution, garnishment, or seizure by

other legal process of public property, including moneys, of a local

government shall not impair the ability of the local government to continue to

provide essential services to the public, including the payment of key

personnel needed for the provision of those services and those employees

necessary for the collection of revenues on behalf of the local government.

(b) In making a determination as to the appropriate extent of an order under this

subsection, a court shall consider but shall not be limited to the factors

provided in subsection (6)(b) of this section.

(9) Nothing in this section shall:

(a) Bar the pursuit of any other remedies that exist to enforce a judgment under

state law; or

(b) Prohibit a local government and a judgment creditor from entering into an

agreement for the payment of damages under terms and conditions that differ

from the remedies and process established under this section.