Even though taxpayers are not creditors and have no right to vote on a municipal plan of adjustment, bankruptcy courts should afford a presumption that they are parties in interest on the issue of feasibility of a plan. Without a party adverse to a plan settled by a city and its creditors, a bankruptcy court runs the risk confirming one that will ultimately fail because the ultimate stakeholders--a city's taxpayers--will not pay. In other words, while increased taxes and decreased municipal services are standard fare in recent Chapter 9 cases, with recognition as parties in interest, those who must pay more and receive less deserve a direct voice in the process.
In addition, an official committee of taxpayers whose professional expenses will be borne by the municipality should be appointed in sizable Chapter 9 cases. The cost of effective representation of collective taxpayer interests exceeds the benefit to any individual taxpayer. Such representation is a public good whose costs should be borne from the public fisc.The second is Who Bears the Burden? The Place for Participation of Municipal Residents in Chapter 9, 37 Campbell L. Rev. 161 (2015). Again quoting myself:
Confirmation of a municipal Chapter 9 plan of adjustment should take the views of municipal residents into account on the issue of a plan’s feasibility. State constitutional and statutory resources must be consulted to determine the baseline of services that must be addressed to evaluate a plan’s feasibility.
The confirmation requirement of feasibility provides the substantive basis for standing of residents, while the relaxed requirements for an Article I tribunal provide the constitutional justification for it. The diffuse and non-pecuniary nature of the interests of residents in municipal services warrants the appointment of an official committee on their behalf.Both articles tend toward the technical in nature. Well, okay, both are technical. Yet each addresses an important point that the bankruptcy courts in the recent large Chapter 9 cases of Stockton and Detroit largely finessed: What is the place for important classes of stakeholders--taxpayers and residents-- who are not creditors of their bankrupt city? Justifying their presence in Chapter 9 cases is vital to the political legitimacy and long-term viability of the arduous and expensive municipal bankruptcy process.