A New Fulcrum Point for City Survival

posted in: Municipal Bankruptcy | 0

By Samir D. Parikh, Lewis & Clark Law School

ParikhMunicipalities face daunting fiscal challenges that threaten debt repayment and undermine basic service delivery.  Policymakers and scholars have struggled to formulate meaningful restructuring options.  Up to this point, the literature has focused on federal bankruptcy law and the options available under Chapter 9.  But this resource-draining process is not the fulcrum point for any meaningful solution.  Indeed, for the vast majority of distressed municipalities, the lever of municipal recovery will not turn based on the solutions that have to date been offered.

In an article forthcoming in the 2015 William & Mary Law Review, I attempt to radically shift the municipal recovery debate by arguing that state law is the centralized point at which officials can exert the necessary amount of pressure to gain concessions from key creditor constituencies.  I propose a comprehensive system that (i) identifies pressured municipalities at a time where measured adjustments are sufficient to create sustainable viability, and (ii) shepherds distressed municipalities through a dynamic negotiation structure in an effort to capture Chapter 9’s primary benefits without the costs, inefficiencies, and constitutional quandaries.  Animating this proposal is a more nuanced understanding of the Contracts Clause that allows a municipality to explore unilateral contract modification in an effort to facilitate consensual agreements with creditor constituencies.

My proposal offers systemic rehabilitation at a time when a new approach is desperately needed.  The full version of the article is available here.

For previous posts on Municipal Bankruptcy see here and here.