How a municipal bankruptcy grew in Brooklyn (Illinois)

An attorney for the village of Brooklyn has called the historic downstate Illinois town a “rags to riches to rags story.”

The town reportedly was founded in the 1820s by a group of families fleeing slavery in Missouri. It is believed to be the first U.S. municipality to be settled by African-Americans.

“From an African-American standpoint, it’s an incredibly significant community,” says municipal attorney Eric Evans, whose clients include Brooklyn and Washington Park.

The then-thriving coal industry and the 1870s opening of the nearby St. Louis National Stockyards helped the community prosper in the late 19th century. But that period of economic growth didn’t last, and by the early 20th century, Brooklyn’s financial decline was in motion.

The long, steep descent reached its nadir in 2003 when Brooklyn, located just across the Mississippi River from St. Louis in St. Clair County, filed for Chapter 9 bankruptcy protection.

The U.S. Bankruptcy Code says municipalities must obtain specific authorization from the state to file for Chapter 9 reorganization.

There’s no law in Illinois granting towns that authority, and state lawmakers didn’t make an exception for Brooklyn, so technically the case shouldn’t have proceeded.

Stephen Clark, a Belleville attorney who filed the petition, says a federal judge allowed it anyway, perhaps because no one objected due to the town’s small tax base and relative lack of holdings. In its petition, Brooklyn reported assets of up to $100,000 and liabilities of up to a half-million dollars.

Aside from property taxes, the village’s main source of revenue was licensing fees paid by strip club operators. But by the mid to late 1990s, that started to dry up as clubs closed amid a law enforcement crackdown and competition from venues in nearby communities, Clark said in a court filing.

About the same time it was discovered that two town officials were embezzling money and letting bills go unpaid, leaving Brooklyn in financial distress, the filing says.

In the aftermath, Brooklyn owed the Internal Revenue Service withholding taxes of more than $230,000, including penalties and interest and “two years worth of payments on a fire truck,” which later was repossessed, the filing says.

To save money the village let its liability insurance coverage lapse, a move that left it unable to afford mounting legal bills, settlements and judgments in lawsuits relating to the town’s financial mismanagement, employee injuries and allegations of police misconduct.

“The community which proudly boasts itself as America’s First Black Town has been left in financial ruin,” Clark wrote.

Brooklyn exited bankruptcy in 2005.

The town still struggles financially and residents’ incomes and home values are below the state’s median levels. But the town is better off than it was before the bankruptcy, Mayor Vera Glasper-Banks says.

The reorganization was a “good thing because it forgave us of all our other bills and started with a clean slate,” she says.