By Stephanie Gleason
After two years of budget cuts and further hits from the federal
budget sequestration, officials at one of the nation's busiest
bankruptcy courts say they are barely getting by on a bare-bones
budget.
The funding for the U.S. Bankruptcy Court for the Southern
District of New York has been reduced by 37% over the last two
years, to $5.06 million for 2013 from $8.06 million in 2011. The
2013 budget includes the 4% cut the court saw as a result of the
across-the-board budget reductions that took effect in March, known
as sequestration.
And the court, which has handled some of the biggest, most
high-profile Chapter 11 cases in recent years is expecting more
budget cuts next year, which could mean further staff cuts.
"Being a chief during the sequestration and during the financial
issues that anyone in the federal court is facing, it's very
difficult," said Chief Judge Cecelia G. Morris.
"We're hurting," she added. "But we've been stepping down for a
period of time."
Cuts to federal spending because of sequestration have been felt
throughout the federal court system, causing furloughs across
district courts, according to the American Bar Association. Federal
district courts in California, Connecticut and Massachusetts are
among those that have furloughed staff. The Arizona district court
laid off 10 employees in addition to introducing furloughs.
The havoc wreaked by the cuts caused the Judicial Conference of
the United States to request $72.9 million in emergency funding for
the federal courts earlier this month to "address critical needs
resulting from sequestration cuts."
But the Southern District of New York bankruptcy court has felt
the strain since 2011 as its budget has been tightened
repeatedly.
The court, which has branches in Manhattan, Poughkeepsie and
White Plains, has had to lay off 27 employees in the last two
years, bringing its staff to 71. There is no one left at all in the
records department, said Vito Genna, the clerk of the court.
The bankruptcy court absorbed the sequester cuts by ending all
hearings at 5:00 p.m., which has been a significant change for a
venue that has been known to conduct hearings well into the
night.
It has avoided having to furlough employees by moving money from
its expenses budget, which funds things like information and
technology, to cover personnel costs. Roughly 70% of the court's
budget goes to personnel expenses, Mr. Genna said, but the court
was worried about morale if furlough days were introduced on top of
the layoffs.
"Anyone that says 'Hello' to me, I ask for money," Mr. Genna
said, adding the court has cut back on all of its operational
costs, even on paper.
"We're just barely making it," he said. "We're not spending any
money on day-to-day operational stuff."
While the court is still feeling the squeeze, furloughs and
further layoffs aren't expected this year and so far bankruptcy
debtors haven't been affected. But next year could be a different
story, Mr. Genna said.
"We're expecting more budget cuts next year," he said.
Bankruptcy debtors filing in New York might begin to feel the
pinch at that point, he said. The Southern District of New York
handled almost 10,000 bankruptcy cases between March 2012 and March
2013, and has handled high-profile cases such as those of General
Motors Co. (GM), MF Global Holdings Ltd. and Lehman Brothers
Holdings Inc.
(Dow Jones Daily Bankruptcy Review covers news about distressed
companies and those under bankruptcy protection. Go to
http://dbr.dowjones.com)
Write to Stephanie Gleason at stephanie.gleason@dowjones.com
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