09 May 2018

Supra-Municipal Bankruptcies Lurking Around the Corner

One might think there's not much left to be written after my three articles addressing aspects of municipal (Chapter 9) bankruptcy: Municipal Bankruptcy: When Doing Less Is Doing Best (download here or here), Who Bears the Burden? The Place for Participation of Municipal Residents in Chapter 9 (here or here), and Nine Into Eleven: Accounting for Common Interest Communities in Bankruptcy (here or here). But what if we had not one, not two, but three simultaneous municipal bankruptcy cases? How could that be, you ask? To get the complete answer you'll need to read Junk Cities: Resolving Insolvency Crises in Overlapping Municipalities (download here). Cribbing from the abstract:
What would happen if the City of Chicago, the Chicago Public Schools, and Cook County all became insolvent at the same time? How should policymakers and courts respond? This Article argues that the pension and budget crises that have left so many local governments deeply in debt have generated another looming problem: the prospect of simultaneous debt crises in overlapping local governments—municipalities, school districts, counties, and other special purpose entities that govern and tax the same territory. These crises will be worse than prior local insolvency crises, as conflicts among overlapping governments will increase the pain suffered by taxpayers, service recipients, and creditors alike.
The U.S. Bankruptcy Code defines "municipality" broadly enough to encompass virtually any non-federal governmental entity other than a State. Thus, a city, a county, and a school district with overlapping areas of jurisdiction may all seek relief under Chapter 9 at the same time. While such a trifecta would give me the opportunity to write even more articles about this field it would be massively disruptive for the folks having to live through the mess.

Might this actually happen? For the reasons discussed in the first of my articles the long-term fiscal viability of many American municipalities is in doubt because of debt-overhang (due primarily to unsustainable retiree pension and health-care benefits) combined with a looming but silent demographic disaster (here and here). Coupled with rising interest rates, it is not unreasonable to expect an uptick in Chapter 9 filings in the not-too-distant future.

No comments:

Post a Comment