AI Case Brief
Generate an AI-powered case brief with:
Estimated cost: $0.001 - $0.003 per brief
Full Opinion
MEMORANDUM OF DECISION
Before the Court is creditors Alamar Ranch, LLC and YTC, LLCâs âObjection to Chapter 9 Case of Boise County and Motion to Dismiss the Case,â Doc. No. 69 (âMotionâ).
FACTS
A. Alamar Judgment
Alamar and YTC are Idaho limited liability companies. Boise County (the âCountyâ) is a rural mountain county in the state of Idaho with a population of approximately 7,000. The Countyâs seat, Idaho City, is located roughly 40 miles northeast of the City of Boise.
On January 8, 2009, Alamar and YTC (hereinafter referred to collectively as âAlamarâ) filed a complaint in the United States District Court for the District of Idaho against the County, Case No. 01:09-cv-00004-BLW (âDistrict Court Caseâ).
The County submitted the Alamar lawsuit to its insurer, the Idaho Counties Risk Management Program (âICRMPâ), and requested that ICRMP defend the lawsuit under the Countyâs policy. ICRMP denied coverage and refused to defend the lawsuit. The County filed a suit for declaratory relief in Idaho state court, seeking a ruling that ICRMP had a duty to defend the County against the Alamar litigation. The state court eventually rendered summary judgment against the County and in favor of ICRMP. The County appealed the state courtâs ruling to the Idaho Supreme Court. That appeal is still pending.
On December 16, 2010, following a nine-day trial, a jury rendered a verdict in Alamarâs favor and against the County for $4,000,000, finding the County had violated the Fair Housing Act. District Court Case, Doc. No. 207. The following day, the District Court entered a Judgment against the County for âthe sum of $4,000,000, with interest to accrue at the applicable federal rate.â District Court Case, Doc. No. 210.
On December 30, 2010, Alamar filed a âBill of Costsâ and a âMotion for Attorney Fees and Nontaxable Expenses.â District Court Case, Doc. Nos. 223 (âCost Billâ) & 224 (âFee Motionâ). Between the Cost Bill and the Fee Motion, Alamar requested an award of $1,236,557.50 for attorneyâs fees, $21,692.06 for taxable costs, and $139,864.01 for nontaxable costs. The County objected, asserting that Alamarâs claim for attorneyâs fees was excessive and unreasonable, that the claim for nontaxable costs should either be disallowed in total or substantially reduced, and that the taxable costs should also be reduced. District Court Case, Doc. Nos. 228 & 230. The District Court has yet to rule on Alamarâs request for fees and costs.
On January 18, 2011, the County appealed the District Court Judgment to the United States Court of Appeals for the Ninth Circuit. District Court Case, Doc. No. 225.
Following entry of the District Court Judgment, Alamar and the County had negotiations concerning payment. On January 26, 2011, legal counsel for the County met with the principals of Alamar, Erik Oaas and Steve Laney, and Alamarâs attorney, Thomas Banducci, to discuss settlement. At that meeting, Banducci indicated that Alamar was interested in further settlement negotiations and requested that the County prepare a settlement offer to propose to Alamar.
The parties met again on February 15. Present at that meeting as legal counsel for the County were Andrew Brassey, Susan Buxton, Michael Moore and Cherese McLain, a County deputy prosecutor. The County was also represented by Jamie Anderson, the County Commission Chair, and Mary Prisco, the County Clerk. Oaas and Laney attended the meeting with Ala-marâs attorneys, Banducci and Wade Woodard. The County did not make a settlement offer at the meeting. However, Banducci represented that Alamar was willing to accept $5 million (a $400,000 reduction from the $4 million judgment plus $1.4 million in fees and costs Alamar expected to be awarded by the District Court) over time with an interest rate tied to the prime rate of interest. The parties agreed to meet again on February 22 for further discussions.
On February 22 the parties met and the County presented Alamar with a settlement offer, embodied in a letter. See Ex. 204. The County offered to pay Alamar $3.2 million, with no interest accruing, in the following manner: (1) $1.9 million in cash to be paid immediately; (2) forgiveness of $164,000 in past due taxes on real property owned by Alamarâs principals; (3) forgone property taxes of approximately $123,000; (4) all taxes collected from a 3% annual increase in the property tax levy for 10 years, beginning August 15, 2012; and (5) assignment of any proceeds from the Countyâs lawsuit against ICRMP. However, the letter also provided that if these methods of payment did not generate sufficient funds to satisfy the $3.2 million offer in 10 years, any remaining balance would be forgiven. Id. at 2. The County represented that its offer reflected a âgood faith effortâ to identify all funds available to pay the Judgment given certain limitations placed on it by the Idaho Constitution and Idaho Code. Id. Attached to the settlement letter as support for the Countyâs position were several pages of financial documents detailing the Countyâs actual and projected revenues and expenses for fiscal years 2010 through 2015. See id. at 5-22.
After consulting with legal counsel Ala-mar rejected the offer, and the parties again parted without having reached an agreement.
On February 24, one of Alamarâs attorneys, Wade Woodard, sent a letter to Susan Buxton, legal counsel for the County, advising her that Alamar would consider, in its efforts to collect on the District Court Judgment, any legal authorities she could provide on whether the Countyâs funds were exempt from execution, a topic that was discussed at the February 22 settlement conference. He also informed Buxton that Alamar was still willing to consider a reasonable offer even though it intended to commence collecting on the Judgment, and threatened that any attempts to hinder Alamarâs collection âcould result in additional liability to the County and personal liability to the individuals involved in such efforts.â Ex. 205.
That same day, Woodard also faxed a letter to Andy Brassey, another attorney for the County, stating that âif the County will commit by March 2, 2011, to paying
Four days after the letters from Woodard, Alamar filed, on February 28, 2011, an âApplication and Declaration for Writ of Executionâ with the District Court. Ex. No. 107 (âWritâ).
C. Bankruptcy
Believing Alamar intended to use the Writ to execute on the Countyâs accounts, and fearing that such execution would significantly interfere with County operations, the County Board of Commissioners
On March 1, 2011, the County filed a petition for relief under chapter 9, commencing this case. See Ex. 224-1. In its schedules, the County listed total assets of $27,765,617.34, and total liabilities of $7,377,343.79, including the $4 million District Court Judgment and a $1.5 million debt to Banducci Woodard Schwartzman, Alamarâs attorneys in the District Court litigation, which represented the attorneyâs fees and costs Alamar had requested from the District Court. Ex. 224-2 at 1, 119â 20.
The County also listed on Schedule F claims for medical indigency payments held by several health care providers reaching back as far as two years that the County had discovered in preparing its bankruptcy schedules. Ex. 224-2 at 121-24.
D. County Finances
The County accounts for and reports its receipts and expenditures in various, separate âfunds.â The Countyâs financial reporting is made pursuant to standards promulgated by the governmental accounting standards board (âGASBâ). See Idaho Code § 31-1509 (requiring counties to use a system for accounting of receipts, expenditures and reporting that meets the criteria of generally accepted accounting principles (âGAAPâ) or the GASB). Accounting for its financial activities in this manner facilitates greater transparency in the reporting process and is intended to allow the County to ensure that its financial activities comply with the restrictions placed on its revenue receipts and the funds into which those receipts are allocated.
The Countyâs budget for fiscal year 2011 (October 1, 2010 through September 30, 2011) contemplates total expenditures of $9,352,734, allocated amongst various, separate âfunds.â Ex. 101. These funds included the Current Expense Fund (also referred to as the âGeneralâ Fund), the Justice Fund, the District Court Fund, the Indigent Fund, the Revaluation Fund, the Tort Fund, the Noxious Weeds Fund, the Solid Waste Fund, the Road and Bridge Fund, the Junior College Tuition Fund, the Emergency Communications 911 Fund, two snowmobile grooming funds (one for Idaho City â âSnowmobile IC8-Aâ â and the other for Garden Valleyâ âSnowmobile GV8-Bâ), the Sheriffs Reserves Fund, and the Sheriffs Vessel Fund. Id. To meet the anticipated expenditures in each of these funds, the budget lists cash to be earned forward in each fund from the previous yearâs budget, projects revenue from sources other than property taxes (e.g., federal and state grants and programs, payments in lieu of taxes, revenue sharing, fees), and states the remaining amounts that would need to be levied as property taxes to meet the expected expenditures in each fund. Id.
As of March 1, 2011, the County had collected revenues of $6,007,950 and made expenditures of $3,040,595 for fiscal year 2011. See Ex. Ill at 18. With these revenues, less expenditures, and the moneys the County had accumulated over previous years, the County had the following cash balances in its various funds on the date of the bankruptcy filing: Generalâ $1,589,733; Road & Bridge â $1,719,631; Justice â $759,152; District Courtâ $546,692; Indigent â $647,597; Junior College Tuition â $135,506; Revaluationâ $167,429; Solid Waste â $1,554,083; Tortâ $26,040; Noxious Weeds â $357,791; Emergency Communications 911â $262,166; Snowmobile IC8-A â $10,449; Snowmobile GV8-B â $1,035; Sheriffs Reserves â $11,941; and Sheriffs Vesselâ $111,159. Id.
Although the County uses funds to account for and report its financial activities, its moneys are actually held in various accounts and investments.
Hutchings testified that all of the money coming into the County is initially deposited into the Wells Fargo general checking account, and that checks issued by the County are made on that same account, on which she and Prisco are signors. As Treasurer, Hutchings moves funds she deems to be idle or surplus to other investments or accounts in order to maximize the return on the Countyâs funds. This also allows her to comply with the statutory requirement that no more than 50% of the Countyâs cash be held in the same account at any one time. Interest earned on the investment accounts is paid into and
When moneys were moved from one account to another or into a particular investment, the County Treasurer generally did not trace from which âfundsâ those moneys were being drawn for accounting purposes. As a result, moneys from multiple funds were commingled in the investment accounts, making it impossible to accurately determine what âfundsâ were represented in each account.
E. Postpetition Filings
On June 14, 2011, the County filed a Plan of Reorganization and accompanying Disclosure Statement. Doc. Nos. 92 & 97. The Countyâs Plan proposes to pay Alamar $500,000 on its claim, relying on the limitation on damages contained in the Idaho Tort Claims Act, Idaho Code §§ 6-901 to - 929. Doc. Nos. 92 at 1-2, 97 at 11-12. It also proposes to pay $550,000 to unidentified medical providers for medical indigen-cy claims, the amount of claims the County estimates should have been paid prepetition but were not. Doc. Nos. 92 at 2, 97 at 11.
DISCUSSION AND DISPOSITION
To be a debtor under chapter 9, an entity must meet the eligibility requirements of § 109(c). That section provides:
An entity may be a debtor under chapter 9 of this title if and only if such entityâ
(1) is a municipality;
(2) is specifically authorized, in its capacity as a municipality or by name, to be a debtor under such chapter by State law, or by a governmental officer or organization empowered by State law to authorize such entity to be a debtor under such chapter;
(3) is insolvent;
(4) desires to effect a plan to adjust such debts; and
(5) (A) has obtained the agreement of creditors holding at least a majority in amount of the claims of each class that such entity intends to impair under a plan in a case under such chapter;
(B) has negotiated in good faith with creditors and has failed to obtain the agreement of creditors holding at least a majority in amount of the claims of each class that such entity intends to impair under a plan in a case under such chapter;
(C) is unable to negotiate with creditors because such negotiation is impracticable; or
(D) reasonably believes that a creditor may attempt to obtain a transfer that is avoidable under section 547 of this title.
A chapter 9 petitioner must satisfy each of the mandatory provisions of § 109(c)(1)-(4), and one of the requirements under § 109(c)(5) to be eligible for relief under the Code. Intâl Assân of Firefighters, Local 1186 v. City of Vallejo (In re City of Vallejo), 408 B.R. 280, 289 (9th Cir. BAP2009). If a petitioner fails to meet the eligibility requirements of § 109(c), the bankruptcy court must dismiss the petition under § 921(c). Id. (noting that despite the permissive language of § 921(c)âi.e., that the court âmay dismissâ a petition if the debtor does not meet the eligibility requirementsâcourts have construed that statute to require mandatory dismissal of a petition filed by a debtor who fails to satisfy § 109(c)) (citing In re Cnty. of Orange, 183 B.R. 594, 599 (Bankr.C.D.Cal.1995)); see also 6 Collier on Bankruptcy ¶ 921.04[4] (Alan N. Resnick & Henry J.
The burden of establishing eligibility under § 109(c) rests on the debtor. Vallejo, 408 B.R. at 289 (citing In re Valley Health Sys., 383 B.R. 156, 161 (Bankr.C.D.Cal.2008)). In determining whether the debtor has met its burden, the bankruptcy court is to âconstrue broadly § 109(c)âs eligibility requirements âto provide access to relief in furtherance of the Codeâs underlying policies.ââ Id. (quoting Valley Health Sys., 383 B.R. at 163). Although Alamar has not objected to the Countyâs eligibility on all aspects of § 109(c), the Court will, for purposes of completeness, address each of the requirements. In doing so, however, the Court takes the question of the Countyâs insolvency out of turn, considering it last.
A. Boise County is a municipality
âMunicipalityâ is defined by § 101(40) of the Code as a âpolitical subdivision or public agency or instrumentality of a State.â Under Idaho law, the County is a body politic of the state of Idaho. See Idaho Code § 31-601. As a political subdivision of the state, the County qualifies as a municipality for purposes of § 109(c)(1).
B. Boise County is authorized to be a debtor under chapter 9
Idaho Code § 67-3903 authorizes any âtaxing districtâ in the state of Idaho to file a petition under the Bankruptcy Code. âTaxing districtâ is defined, for purposes of Idaho Code § 67-3903, âto be a âtaxing districtâ as described in chapter IX of an act of Congress entitled âAn act to establish a uniform system of bankruptcy throughout the United States,â approved July 1, 1898, as amended.â Idaho Code § 67-3901. Chapter IX of the Federal Bankruptcy Act of 1898, as amended, was repealed with the enactment of the current version of the Bankruptcy Code in 1978. Bankruptcy Reform Act of 1978, Pub.L. No. 95-598, §§ 101 & 401, 92 Stat. 2549 (codified as amended at 11 U.S.C. §§ 101-1532). It described a âtaxing districtâ as any âmunicipality or other political subdivision of any State, including (but not hereby limiting the generality of the foregoing) any county, city, borough, village, parish, town, or township, unincorporated tax or special assessment district, and any school, drainage, irrigation, reclamation, levee, sewer, or paving, sanitary, port, improvement or other districts.â Bankruptcy Act of 1898, ch. 9, sec. 80(a), 48 Stat. 798 (1934).
The current Bankruptcy Code lacks a definition of âtaxing district.â Instead, as noted above, it uses the term âmunicipalityâ to describe those entities that may seek relief under chapter 9, provided they are authorized to do so under state law. See § 109(c). This raises questions regarding the interpretation and effect of Idaho Code §§ 67-3901 and -3903. For example, does Idaho Code § 67-3901 continue to incorporate by reference the description of âtaxing districtâ contained in the now-repealed Bankruptcy Act of 1898, does it somehow embrace the definition of âmunicipalityâ in the current version of the Code, or is the definition of âtaxing districtâ for purposes of Idaho Code § 67-3903 left open-ended or untethered due to the repeal of the Bankruptcy Act?
For purposes of this case, however, the Court determines such issues need not be addressed. Under both the description of âtaxing districtâ found in the Bankruptcy Act and the definition of âmunicipalityâ in the current Code, the County qualifies. Additionally, should there exist any question as to whether either definition may be applied under a technical reading of Idaho
Idaho Code § 67-3904 also requires that, before filing the petition, a taxing district adopt a resolution authorizing the filing. Here, the County adopted such a resolution following a public vote by the Board of Commissioners at the February 28, 2011, County Commissionersâ meeting. See Ex. 208.
The Court concludes that the County was specifically authorized by Idaho law to be a chapter 9 debtor and § 109(c)(2) is satisfied.
C. Boise County has demonstrated the requisite desire to effect a plan to adjust its debts
An entity may be a debtor under chapter 9 only if it âdesires to effect a plan to adjust [its] debts.â Section 109(c)(4). No bright-line test exists for determining whether a debtor desires to effect a plan. Vallejo, 408 at 295. The inquiry under § 109(c)(4) is a highly subjective one that may be satisfied with direct and circumstantial evidence. A debtor may prove its desire by attempting to resolve claims, submitting a draft plan of adjustment, or by other evidence customarily offered to demonstrate intent. Id. âThe evidence
The County has shown a desire to effect a plan to adjust its debts. County officials worked at negotiating a settlement with Alamar before filing the petition. The assertions of Commissioners Anderson, Fry, and Day that they view adjustment of Alamarâs claim through bankruptcy as the only viable alternative given Alamarâs escalating collection tactics and their obligation to keep the County operating were credible. Each of the Commissioners testified that they believed the Alamar Judgment was a valid debt that should be paid. The purpose of filing the petition was not to evade Alamar but to find a way to pay the Judgment in a manner that County officials believed would comply with Idaho law and not cripple County operations.
Additionally, the County has continued its attempts to resolve Alamarâs claim postpetition, as evidenced by correspondence between Blair Clark, bankruptcy counsel for the County, and Alamarâs attorneys. See Exs. 215-216, 219-222. And, while the Countyâs proposed plan treatment of Alamar â i.e., the $500,000 payment on the theory that Alamarâs District Court Judgment should and could be somehow reduced by this Court under the Idaho Tort Claims Act â would likely not pass muster at confirmation (for a number of reasons), submission of the Plan and Disclosure Statement may be considered by the Court as evidence of the Countyâs desire to ultimately adjust its debts through a plan.
Based on the evidence of record, the Court finds that the County has met its burden under § 109(c)(4) of demonstrating a desire to effect a plan to adjust its debts.
D. For Boise County, further negotiation with Alamar had become impracticable
The next step is to determine whether the County satisfies at least one of the requirements of § 109(c)(5). The County argues that by the time of filing further negotiation with Alamar had become impracticable. Section 109(c)(5)(C) requires the County demonstrate that it âis unable to negotiate with creditors because such negotiation is impracticable.â Whether negotiation with creditors is impracticable is dependent upon the circumstances of the case. Vallejo, 408 B.R. at 298. In the context of § 109(c)(5)(C), negotiation is impracticable where â(though possible) it would cause extreme and unreasonable difficulty.â Id. (quoting Valley Health Sys., 383 B.R. at 163). A petitioner may demonstrate impracticability by the sheer number of its creditors or by its need to file a petition quickly to preserve assets. The need to act quickly to protect the public from harm may also show the impracticability of negotiation. Id.
Here, the County filed its petition to fend off what it perceived to be imminent execution on the Countyâs accounts. The evidence demonstrates the parties had effectively reached an impasse in their negotiations, and that Alamar, through Woodardâs February 24 letters and its application for the Writ, had demonstrated a sincere intent to promptly execute on its Judgment. The Countyâs need to preserve its cash assets in order to maintain County operations uninterrupted for the benefit of its residents made further negotiations with Alamar impracticable.
The Court finds that the County has met its burden under § 109(c)(5)(C).
Alternatively, the County contends that it has satisfied § 109(c)(5)(D). Section 109(c)(5)(D) provides that an entity may be a debtor under chapter 9 if it âreasonably believes that a creditor may attempt to obtain a transfer that is avoidable under section 547 of [title 11].â The Court agrees that the County has demonstrated that at the time of filing it reasonably believed Alamar may attempt to obtain a preferential transfer avoidable under § 547.
As a noted treatise explains, § 109(c)(5)(D) is intended to allow a âmunicipality to file its petition and obtain the benefits of the automatic stay while it negotiates its plan with creditors, when aggressive creditor action may result in a preferential payment, which by its nature is unfair to other creditors.â 2 Collier ¶ 109.04[3][e][iv]. Such was the case here. Alamarâs increasingly aggressive attempts to collect on its Judgment, including Woodardâs February 24 correspondence and the February 28 Writ application, created a reasonable belief in the County that Ala-mar would obtain a payment that would prevent the County from fulfilling its other financial obligations. Had Alamar successfully utilized its Writ to execute on the Countyâs accounts, it would have received a transfer of the Countyâs property on account of the Judgment, an antecedent debt.
The Court finds the Countyâs concern that it would be unable to withstand execution on the Alamar Judgment and effectively continue operations, and that such execution could constitute a potentially avoidable preference, was reasonable.
One of the elements of a preference is insolvency of the debtor at the time of the transfer. See § 547(b)(3). Here, and as discussed at length infra, insolvency of the County is disputed.
The Court therefore concludes that the County satisfies § 109(c)(5)(D).
F. Boise County has not established that it was insolvent on the date of filing
Finally, the Court addresses what has developed, in its view, into the major issue dividing the parties â whether at the time of filing the County was insolvent as required by § 109(c)(3). A municipality is insolvent if it is â(i) generally not paying its debts as they become due unless such debts are the subject of a bona fide dispute; or (ii) unable to pay its debts as they become due.â Section 101(32)(C). The test under § 101(32)(C)(i) involves current, general nonpayment, while the test under § 101(32)(C)(ii) looks to future inability to pay. Hamilton Creek Metro. Dist. v. Bondholders Colo. Bondshares (In re Hamilton Creek Metro. Dist.), 143 F.3d 1381, 1384 (10th Cir.1998). The reference point for the insolvency analysis under both prongs is the petition date. Id. at 1384-85; In re Pierce Cnty. Housing Auth., 414 B.R. 702, 710-11 (Bankr.W.D.Wash.2009). As with other eligibility requirements, the petitioner bears the burden of proving one of the § 101(32)(C) insolvency tests is met. Hamilton Creek, 143 F.3d at 1385 (citing Tim Wargo & Sons, Inc. v. Equitable Life Assurance Socây (In re Tim Wargo & Sons), 869 F.2d 1128, 1130 (8th Cir.1989)).
1. Section 101(32)(C)(i)
The County concedes that at the time of filing it was paying its debts as they came due, with the exception of the estimated $550,000 in medical indigency claims it had neglected to process and submit to the Catastrophic Health Care Cost Program. It argues that these unpaid medical indigency claims represent a debt not paid when due, thus rendering the County insolvent under § 101(32)(C)(i). The Court disagrees.
Section 101(32)(C)(i) requires general nonpayment of debts as they become due. The Countyâs failure to process and pay a single category of claims, which represents only a small portion of its budgeted expenditures, from what appear to be adequate funds does not rise to the level of the general nonpayment contemplated by § 101(32)(C)(i). See In re Town of Westlake, Texas, 211 B.R. 860, 864-65 (Bankr.N.D.Tex.1997) (finding debtor municipality that was current on 76% of its obligations and delinquent on 24% due to a âtemporary political dispute over authority to sign checks from admittedly ample fundsâ was not insolvent by reason of generally not paying its debts as they became due).
The evidence presented shows that the County Indigent Fund contained more than sufficient funds to pay the estimated outstanding medical indigency claims and still cover the projected claims for the remainder of fiscal year 2011. See Ex. Ill at 6. According to the Countyâs figures, on the petition date there was a cash balance in the Indigent Fund of $647,597. Deducting the $550,000 in purported claims leaves a remaining balance of $97,597. For March and April 2011, the Countyâs cash flow summary reflects an actual net change of negative $2,569. For the remaining months of fiscal year 2011 (May through September), the County projects a total net change of negative $50,272. Subtracting these numbers from the $97,597 balance results in a positive cash balance of $44,756 in the Countyâs Indigent Fund
In addition, the Court is not persuaded that the purported $550,000 in medical in-digency payments is in fact âdueâ for purposes of § 10 l(32)(C)(i). âDueâ in this context has been defined as âpresently, unconditionally owing and presently enforceable.â Hamilton Creek, 143 F.3d at 1385. Accordingly, evidence of when debts arose and amounts owed by a debtor without evidence of when the amounts are actually payable is insufficient to prove the petitioner is not meeting its debts. Id. (citing by analogy cases interpreting § 303(h)(1)).
Here, the County offered no evidence concerning when the medical indigency payment claims became, or would become, payable. The evidence presented at hearing was that the County is aware of certain applications for medical indigency payments that were not processed, submitted, or paid according to certain statutorily mandated time linés. Per Idaho Code § 31-3511(4), these applications are deemed approved and payment will be made pursuant to the provisions of the medical indigency statute, chapter 35, title 31, Idaho Code, but only at some later date when the precise amounts of the claims have been determined.
Prisco acknowledged in her testimony that the County had not actually been able to determine the amount of the indigency payments because it had yet to receive all of the bills and other documentation for those payments, though it has estimated these claims to be around $550,000. There is no evidence, however, as to when those amounts would actually be determined and the claims made payable. This is consistent with the representations made in Schedule F of the Countyâs bankruptcy schedules. See Ex. 224-2 at 122.
The Court is thus left with evidence that a debt for medical indigency payments exists, equivocal evidence as to the amount of that debt, and no evidence concerning when the debt was or will be actually payable. Based on this showing, the Court cannot find that the debt is âdueâ under § 101(32)(C)(i).
2. Section 101(32)(C)(ii)
The County also alleges insolvency under the second prong of § 101(32)(C), claiming it will be unable to pay the Ala-mar Judgment and meet its other expenses for supporting county operations.
The test under § 101(32)(C)(ii) is a prospective one, which requires the petitioner to prove as of the petition date an inability to pay its debts as they become due in its current fiscal year or, based on an adopted budget, in its next fiscal year. In re City of Bridgeport, 129 B.R. 332, 336-38 (Bankr.D.Conn.1991); see also Hamilton Creek, 143 F.3d at 1384-85; Westlake, 211 B.R. at 864-66. This analysis is made on a cash flow, rather than a budget deficit, basis. Hamilton Creek, 143 F.3d at 1386; Pierce Cnty. Housing Auth., 414 B.R. at 711.
Alamar contends that the Countyâs own financial records show that it has sufficient cash on hand in its various investments and accounts to pay the Judgment and meet the Countyâs other expenses for the upcoming fiscal year. The County counters that, although it had close to $10 million in cash and investments on the petition date, most of the cash in its accounts are ârestrictedâ by federal and state law to certain uses, which do not include payment of the Alamar Judgment. The Court finds the Countyâs arguments unpersuasive.
First, Prisco testified that the moneys in the so-called âtrust accountsâ (i.e., the
Second, the County has also failed to convince this Court that it would be unable to utilize the reserves it has accumulated in the General, Road & Bridge, and Solid Waste Funds to pay the Judgment.
Generally, counties in Idaho are prohibited from making expenditures in excess of their budget appropriations. See Idaho Code § 31-1607. As a means of assuring compliance with this provision, Idaho Code § 31-1607 provides that any expenditures made, liabilities incurred or warrants issued in excess of budget appropriations are the personal liability of the county official making or incurring such liability, expenditure, or issuing such warrant, and are not the liability of the county. See Garrity v. Bd. of Commârs of Owyhee Cnty., 54 Idaho 342, 34 P.2d 949, 955 (1934).
There are exceptions, however, to the prohibition of expenditures in excess of a countyâs adopted budget. One is for expenditures made upon an order of a court of competent jurisdiction. Another is for certain emergencies enumerated in the Idaho Code. Id. Such emergencies include those
caused by fire, flood, explosion, storm, epidemic, riot or insurrection, or for the immediate preservation of order or of public health or for the restoration to a condition of usefulness of public property, the usefulness of which has been destroyed by accident, or for the relief of a stricken community overtaken by a calamity, or the settlement of approved claims for personal injuries or property damages, exclusive of claims arising from the operation of any public utility owned by the county, or to meet mandatory expenditures required by law, or the investigation and/or prosecution of crime, punishable by death or life imprisonment, when the board [of county commissioners] has reason to believe such crime has been committed in its county.
Idaho Code § 31-1608 (emphasis added). These exceptions allow a county to meet emergency expenses not anticipated by its annual budget. See Garrity, 34 P.2d at 955; Lloyd Corp. v. Bannock Cnty., 53 Idaho 478, 25 P.2d 217, 219-20 (1933).
If there is inadequate levy authority available in the obligated fund to redeem the outstanding warrants in the next fiscal year a warrant redemption fund must be established to redeem warrants. Idaho Const, art. VII, § 15; Idaho Code § 31-1507. To fund the redemption of warrants, the county is required to establish a warrant redemption levy, with a maximum levy of two-tenths of one percent (.2%) of the market value for assessment purposes of all taxable property in the county. Idaho Code § 63-806(1). In addition to the warrant redemption levy, all money in the county treasury on October 1 for the county current expense (general) fund, county road fund, county bridge fund or any other fund which is no longer needed for current expenses must be transferred to the warrant redemption fund by resolution of the county commissioners. Idaho Code § 63-806(2).