AUGUSTA — A bill that would let Maine towns and counties seek bankruptcy protection received little support at a legislative hearing last week.

The bill, sponsored as an emergency measure by Sen. Marianne Moore, R-Washington, recognized increasing financial pressures on counties and municipalities as property values rise and the cost of living increases.

If passed, the measure would let public officials seek relief through federal bankruptcy proceedings once their counties or municipalities have “exhausted all reasonable alternatives to resolving its debt obligations” and the state auditor finds a town or county insolvent.

The bill would also require a majority of county commissioners or municipal officers to approve a bankruptcy filing before it could proceed.

When introducing the bill before the Legislature’s Joint Standing Committee on State and Local Government, Moore explained that she sponsored the bill on behalf of Washington County in an effort to help officials dig out from significant debt.

Recently, Washington County officials said they no longer support the bill. Moore said she found the reversal disappointing, but decided to move forward anyway to help others that might need it. She emphasized that the protections would allow towns and counties to reorganize and reduce debt, but would not allow them to liquidate operations.

Officials in Washington County have taken steps to address more than $8 million of debt, including asking municipalities to voluntarily prepay their portion of a 2025 tax anticipation note, or TAN, but they are “not out of the woods yet,” Moore said. Other local governments, including Penobscot and Waldo counties, are also facing challenges.

Moore said 30 states already allow financially distressed towns and counties to seek bankruptcy protection, though the provisions are rarely used. Jefferson County, Alabama, filed in 2011 after a failed sewer project. Detroit has also sought protection, as have Stockton and San Bernardino, California.

Moore acknowledged that financial institutions — including Machias Savings Bank, which holds Washington County’s outstanding 2025 TAN — have raised concerns about the bill. She said alarm bells have gone off elsewhere over the possibility of leaving creditors empty‑handed in a bankruptcy proceeding.

“Regardless of the situation in Washington County, we need to have this tool available in the state of Maine,” Moore said.

Josh Steirman, director of government relations for the Maine Bankers Association, spoke against the bill, warning it could worsen financial challenges for towns and counties by increasing risk and discouraging lenders.

Steirman noted that Maine already provides a path for towns to seek bankruptcy protection through the Legislature, which can authorize filings on a case‑by‑case basis.

“What you have before you today is an opening for any municipality at any time” to file for bankruptcy, which makes lenders nervous, he said.

Rebecca Lambert, a municipal issues specialist with the Maine Municipal Association, also testified against the bill. She said entering bankruptcy proceedings would signal financial instability to banks, “potentially raising borrowing costs statewide.” That, she argued, would shift the cost of financial mismanagement onto taxpayers and invite federal court decisions into areas traditionally under local control.

After polling its members, including Washington County, the Maine County Commissioners Association, or MCCA, also testified against the bill.

Speaking for the association, James Cohen, a partner at the law firm Verrill, said every county in Maine borrows money, and “when they go out to borrow, one of the factors lenders consider is the risk of repayment.”

He warned that any risk would drive up interest rates and affect tax bills.

In written testimony, the MCCA said higher interest rates would naturally follow to “offset the higher risk of loan delinquency due to bankruptcy,” a risk it noted does not exist now in municipal and county lending.

The association said Maine’s counties and municipalities have a long record of meeting their financial obligations without resorting to bankruptcy protection, as “local governments endeavor to pass balanced budgets to maintain a fund balance to offset unexpected expenses.”

Moore said Washington County’s situation stemmed from a unique mix of factors, including a change in accounting rules, reliance on carryover funds to cover cash flow shortages, delayed audits and other issues.

The MCCA said it did not want to support a bill that would address unique circumstances in a specific county or municipality when the impact would be felt beyond that town or county’s jurisdiction.

“Financial markets do not assess risk on a jurisdiction-by-jurisdiction basis in isolation. Instead, they evaluate statewide legal frameworks and categories of governmental entities,” Cumberland County Commissioner Jean-Marie Caterina wrote in the MCCA’s testimony.

She said that if the bill were to pass, lenders would still weigh the potential for risk, even if a town or county never sought its protection, and “higher interest rates in turn would require more debt service and higher taxes to pay for the higher costs.”

The only testimony in support of the bill came in writing from the Maine Policy Institute, which called it an “incentive for prudent governance.”

The “mere existence of a legal mechanism for bankruptcy can encourage municipal officials to take proactive steps to avoid insolvency,” according to the institute’s written testimony, by providing a process for “municipalities in crisis to restructure debt, renegotiate unsustainable contracts, and emerge on stronger footing.”

The Finance Authority of Maine did not specifically oppose the bill, but it echoed other lenders’ concerns, warning that while sympathetic to Washington County’s situation, FAME sees potential negative effects on bond financing statewide — particularly for bondholders and the state’s credit rating.

Terry Hayes, executive director of the Maine Municipal Bond Bank, also testified against the bill.

While praising Moore for conscientiously researching and drafting the bill to help her constituents, Hayes said adopting bankruptcy protections “injects a level of risk, and it goes on forever. It’s not like it stops” because it is written into law.

She suggested the bill could be reworked and reintroduced in a future legislative session, but said: “There is a crisis in Maine and it will not be resolved by this bill. It is the shortage of auditors” available to towns and counties.

“We need to find a way to grow our own and put them to work,” Hayes said.

Several committee members agreed the shortage of auditors must be addressed, and there was consensus on stricter adherence to the statutory requirement for towns and counties to conduct annual audits.

Moore said that when Washington County recognized the depth of its financial crisis, it asked the state auditor for help with overdue audits, but was denied because the office lacks staff.

One factor weighing on Washington County was the departure of a longtime auditor during the COVID-19 pandemic, when he declined to enter the county building to pick up paperwork. After the county ended his services, it took years to hire a new auditor, Moore said, who has just completed the 2022 audit and is working to catch up with 2023 and 2024.

Without accurate auditing, Moore said, “how can you even have a budget if you don’t know how much money you have?”

Sen. Joseph Baldacci, D‑Penobscot, co‑chair of the Joint Standing Committee on State and Local Government, raised concerns about authorizing any kind of bankruptcy relief without knowing where Washington County’s money went.

“As legislators, we need to know exactly what happened to prevent it from happening again,” he said.

He said he wants Washington County to get help, but was not sure bankruptcy protection is the solution.

Rep. William Tuell, R‑East Machias, co‑sponsor of the bankruptcy bill, said the Legislature should focus on accountability and transparency in audits. He suggested creating a schedule for forensic audits of each county over eight years, with two counties audited annually. The goal, he said, is “to make sure there’s accountability and reduce the risk of default.”

Rep. Randall Greenwood, R‑Wales, asked that the committee receive more information on current statutory audit requirements. He also requested details on the financial accounting process to be presented during the bill’s work session.

Committee members expressed interest in having the state auditor attend the work session, which is not yet scheduled.

This story was originally published by The Maine Monitor, a nonprofit civic news organization. To get regular coverage from The Monitor, sign up for a free Monitor newsletter here.