Municipal Bankruptcy, Essential Municipal Services, and Taxpayers’ Voice

Source: Christine Sgarlata Chung, Widener Law Journal, Vol. 24, 2015

From the abstract:
When a municipality is the debtor, as is the case in chapter 9 municipal bankruptcies, one might assume that the law recognizes community/taxpayer interests at all stages of chapter 9 proceedings. That assumption would be incorrect. Unlike bondholders, public employees (active and retired), and other creditors affected by municipal insolvency, all of whom have a voice in chapter 9 proceedings, a municipal debtor’s residents — taxpayers who pay for and rely upon municipal services — do not have a clear statutory right to participate in a chapter 9 case. In this article, I argue that taxpayers should have a voice at every stage of a chapter 9 proceeding, as taxpayers are directly and profoundly impacted by municipal insolvency and by chapter 9 plans of adjustment. Citing Stockton and Detroit municipal bankruptcy cases, I argue that taxpayers ought to be considered a type of creditor, owed a debt of at least minimally acceptable essential services, and that taxpayers therefore should have a voice alongside other creditors whenever an insolvent municipality seeks chapter 9 relief.