Another Slice of Municipal Bankruptcy

If "No taxation without representation!" was good enough for a Founding-era bumper sticker, then it should certainly carry some weight in Chapter 9 municipal bankruptcy. At least I think so. And so I argue in an article to be published this fall in the Widener Law Journal. (But you can download an almost-final draft here.) Titled Who Bears the Cost? The Necessity of Taxpayer Participation in Chapter 9 stands for the proposition that taxpayers, even though they are not among a city's creditors and thus have no right to vote to approve or reject a city's Chapter 9 plan of adjustment, should have standing to object to a plan's feasibility

"Feasibility" is one of the tests that must be satisfied before the Bankruptcy Court can confirm a city's plan. Feasibility, in turn (so I argue), can be divided into two components. The first, and most straightforward, looks to the city's projected income including collection of real estate taxes. And who better than taxpayers to weigh in on what may be overly optimistic expectations of what can ultimately be collected? Thus, taxpayers should be counted as parties-in-interest, be permitted to form an official committee, and even have their committee's expenses paid as part of the costs of the city's bankruptcy process.

Feasibility's second component is the subject of an article I expect to present in October at the Campbell University Law Review's symposium on municipal bankruptcy. For those who can't wait, I will argue that the much-bruited concept of "service insolvency" has just enough substance to be considered as part of feasibility. In other words, a city's resident's are entitled to a bare baseline of municipal services and thus they too should be heard when it comes to the feasibility of a plan of adjustment.