Blog

Two Authors Offer Suggestions on Chapter 9 Bankruptcy

Print Friendly, PDF & Email

In an opinion piece appearing in a northeast PA newspaper, two authors take a look at Chapter 9 municipal bankruptcy, something that is quite rare but has occurred in cities such as Detroit and Vallejo in the last decade.  The authors point out some of the shortcomings of having local officials involved in bankruptcy filings and what plagues those localities that might push them toward bankruptcy (legacy costs especially).

Given the negative stigma of a bankruptcy for a municipality is why states often have intermediate steps prior to getting to bankruptcy.  As our 2009 report pointed out, states are the gatekeepers on local government bankruptcy filings–they can prohibit it, attach conditions, etc.–and the authors’ point on having the state receiver work with the Federal judge runs a bit counter to what our report described from a bankruptcy court memorandum on the Vallejo case.  That memo basically stated that a state allowing one of its local governments to go to bankruptcy court cedes language related to state control at that point.  It would seem that if it proceeds to that point the state has given up on rectifying the local government’s financial difficulties through the tools it has at its disposal.

Print Friendly, PDF & Email
Allegheny Institute
Allegheny Institute

The Allegheny Institute is a non-profit research and education organization. Our mission is to defend the interests of taxpayers, citizens and businesses against an increasingly burdensome and intrusive government.

Subscribe to Our Newsletter

Weekly insights on the markets and financial planning.

Recent Posts