07 April 2015

What's Worse Than a City in Chapter 9 Municipal Bankruptcy?

A city that's kicked out of Chapter 9.

Last year I posted about hapless San Bernardino here and here but go yet here to read an insightful piece by Frank Shafroth about the Twilight-Zone possibilities that await the city if it doesn't get its act together and file a Chapter 9 plan by the end of May. Frank was another of the panelists at the Widener Law Journal's April 2014 symposium on Chapter 9 bankruptcy where I also spoke.

Frank's piece makes a number of interesting points but this one is crucial:
U.S. Bankruptcy Judge Thomas Bennett [who handled the Jefferson County, Alabama Chapter 9 bankruptcy] told me that one of his greatest concerns in the Jefferson County, Ala., case was the absence of the county's taxpayers from a key role in helping it put together its exit plan. That isn't going to be the case in San Bernardino. But involving the public in the creation of San Bernardino's plan to exit bankruptcy is likely to be a messy process.
My panel topic at the Widener symposium was the necessity of taxpayer involvement in the Chapter 9 plan process. Many might be surprised that the Bankruptcy Code spells out no specific role for taxpayers, which seems odd since ultimately they'll be footing the bill. My comments turned into an article that the Widener Law Journal published. You can download and read my piece, Who Pays the Price? The Necessity of Taxpayer Representation in Chapter 9 by going here.

But taxpayers do not constitute the entire public whose interests are at stake in a municipal bankruptcy. All of a city's citizens are recipients of some city services ranging from police and fire protection to libraries to developer-friendly convention centers. Many municipal residents do not pay direct taxes and some taxpayers are not residents. Thus, I argued in Who Bears the Burden? The Place for Participation of Municipal Residents in Chapter 9 (download here) that in appropriate cases municipal residents should be heard on the "feasibility" of a proposed plan of adjustment.

All of this will be meaningless if San Bernardino's case is dismissed. From an outside perspective, what becomes of the claims of the city's many creditors would be an interesting case study. From the perspective of the city's taxpayers and residents, however, dismissal would represent a loss of money and time and perhaps much more.

No comments:

Post a Comment