Fiscal federalism, political will, and strategic use of municipal bankruptcy

University of Chicago Law Review

Volumn 79, Issue 1, 2012, Pages 283-331

  Gillette, Clayton P ^a  

^a NEW YORK UNIVERSITY   (United States)

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[No Author keywords available]

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EID: 84862540743     PISSN: 00419494     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (247)

1. Mark Baldassare, When Government Fails: The Orange County Bankruptcy 151-60 (California 1998).
2. In re City of Vallejo, 408 BR 280, 287 (BAP 9th Cir 2009). The city has recently proposed a plan under which it would pay unsecured creditors between 5 and 20 percent of their claims.
3. See Randall Jensen, Vallejo Offers 5-20 Cents on the Dollar, Bond Buyer 1, 6 (Jan 20, 2011).
4. *10, 12 (Bankr ED Cal).
5. Romy Varghese, Harrisburg Surrender: Why Pennsylvania's Capital Skipped Its Debt Payment, Wall St J C1 (Sept 8, 2010).
6. See Paul Burton, Harrisburg Rips Up Its Blueprint for Recovery: Council Backtracks; Mayor Eyes Moves, Bond Buyer 1, 6 (July 21, 2011).
7. See Michael Corkery and Kris Maher, Capital Files for Bankruptcy: In Fight with State, Harrisburg, Pa., Rejects Governor-Backed Plan to Sell Assets, Wall St J A3 (Oct. 13, 2011).
8. *15 (Bankr MD Pa).
9. See Nick Bunkley, Debt Rising, a City Seeks Donations in Michigan, NY Times A10 (Nov. 20, 2010).
10. See Andrew Haughwout, et al, Local Revenue Hills: Evidence from Four U. S. Cities, 86 Rev Econ & Stat 570, 582-83 (2004).
11. See Baldassare, When Government Fails at 147-48 (cited in note 1).
12. Eric H. Monkkonen, The Local State: Public Money and American Cities 69-77 (Stanford 1995).
13. 11 USC § 901 et seq (2008).
14. Michael W. McConnell and Randal C. Picker, When Cities Go Broke: A Conceptual Introduction to Municipal Bankruptcy, 60 U Chi L Rev 425, 474 (1993).
15. See, for example, Kevin A. Kordana, Tax Increases in Municipal Bankruptcies, 83 Va L Rev 1035, 1106-07 (1997). (Pubitemid 127445638)
16. See also Omer Kimhi, Reviving Cities: Legal Remedies to Municipal Financial Crises, 88 BU L Rev 633, 653 (2008).
17. See Omer Kimhi, Chapter 9 of the Bankruptcy Code: A Solution in Search of a Problem, 27 Yale J Reg 351, 362-65, 385-89 (2010).
18. See Kordana, 83 Va L Rev at 1106-07 (cited in note 17).
19. See Lynn A. Baker and Clayton P. Gillette, Local Government Law: Cases and Materials 237-48 (Foundation 4th ed 2010).
20. See, for example, Mardi Dungey, et al, Contagion in International Bond Markets during the Russian and the LTCM Crises, 2 J Fin Stability 1, 19 (2006);
21. John M. Halstead, Shantaram Hegde, and Linda Schmid Klein, Orange County Bankruptcy: Financial Contagion in the Municipal Bond and Bank Equity Markets, 39 Fin Rev 293, 295-99, 313 (2004).
22. See Bethany McLean and Joe Nocera, All the Devils Are Here: The Hidden History of the Financial Crisis 47-51 (Penguin 2010) (discussing how the market's treatment of privately held, but federally chartered, government-sponsored enterprises allowed them to issue debt as if it were supported by an implicit federal guarantee and induced the government ultimately to intervene as if actual guarantees existed).
23. See Wallace E. Oates, Toward a Second-Generation Theory of Fiscal Federalism, 12 Intl Tax & Pub Fin 349, 350-54 (2005);
24. David A. Super, Rethinking Fiscal Federalism, 118 Harv L Rev 2544, 2571-79 (2005);
25. Clayton P. Gillette, Fiscal Federalism and the Use of Municipal Bond Proceeds, 58 NYU L Rev 1030, 1065-66 (1983).
26. See Oates, 12 Intl Tax & Pub Fin at 352-53 (cited in note 24).
27. See also Super, 118 Harv L Rev at 2556-58 (cited in note 24).
28. See Robert S. Amdursky and Clayton P. Gillette, Municipal Debt Finance Law: Theory and Practice 25-29 (Little, Brown 1992).
29. *17-18 (unpublished manuscript, June 2011), online at http://papers.ssrn. com/sol3/papers.cfm?abstract-id= 1836678 (visited Nov. 15, 2011).
30. See State v City of Lakeland, 16 S2d 924, 925 (Fla 1944) (en banc) (holding that a city's pledge of "'full faith, funds, property, credit, and resources' did "no more, in legal effect, than express an undertaking by the city to be irrevocably obligated, in good faith, to use such of its resources and taxing power as may be authorized or required by law for the full and prompt payment of the principal and interest of the obligation"). The court's conception of an "undertaking", especially modified by the "good faith" limitation, arguably falls short of an absolute promise of payment.
31. See, for example, DeFoe v Town of Rutherfordton, 122 F2d 342, 345 (4th Cir 1941).
32. See Flushing National Bank v Municipal Assistance Corp, 358 NE2d 848, 851-52 (NY 1976).
33. See Brent T. White, The Morality of Strategic Default, 58 UCLA L Rev Discourse 155, 156(2010), online at http://uclalawreview.org/pdf/discourse/58-8. pdf (visited Nov. 13, 2011).
34. See Gretchen Morgenson, The Swaps that Swallowed Your Town, NY Times BU1 (Mar. 7, 2010).
35. See also Michael Cooper and Mary Williams Walsh, Mounting Debts by States Stoke Fears of Crisis, NY Times A1 (Dec. 5, 2010);
36. Leslie Wayne, Localities Want U. S. to Support Muni Bonds, NY Times B1 (May 26, 2009).
37. See, for example, Colleton County Taxpayers Association v School District of Colleton County, 638 SE2d 685, 690 (SC 2006) (holding that a school district may incur general obligation debt "provided the school district remains within the constitutional and statutory limits");
38. Moschenross v St. Louis County, 188 SW3d 13, 20 (Mo App 2006):
39. Drury v City of Cape Girardeau, 66 SW3d 733, 740 (Mo 2002) (en banc). The New Jersey Supreme Court initially expressed skepticism about the propriety of the practice, noting that the market treated "subject to appropriation" as the equivalent of general obligation debt to which issuers have pledged their faith and credit.
40. See Lonegan v State, 809 A2d 91, 101, 107-09 (NJ 2002).
41. But the court subsequently determined that the constitutional debt limitation applied only when the state is legally obligated to make payments. Lonegan v State, 819 A2d 395, 402-03 (NJ 2003).
42. See, for example, Lonegan, 809 A2d at 128 (Stein concurring in part and dissenting in part)
43. quoting Revised Lease and Appropriation-Backed Debt Rating Criteria 1 (Standard & Poor's June 12, 2001):
44. See Yvette Shields, Investors: All Eyes on Menasha, Wis., Steam-Plant Lawsuit, Bond Buyer 5 (Sept 9, 2010).
45. Jonas Elmerraji, What Happens When Cities Go Broke? In a Tough Economy, Bankruptcy Has Become a Dreaded-Yet Not Uncommon-Phenomenon, Even for Cities and Municipalities, Forbes (July 2, 2010), online at http://www.forbes.com/2010/07/ 02/when-citiesgo-broke-personal-finance-municipal.html (visited Nov. 13, 2011).
46. *6-7, 12, 16-18, 29-30 (Bankr ED Cal).
47. The relevant provision, 11 USC § 904, reads as follows: Notwithstanding any power of the court, unless the debtor consents or the plan so provides, the court may not, by any stay, order, or decree, in the case or otherwise, interfere with-(1) any of the political or governmental powers of the debtor; (2) any of the property or revenues of the debtor; or (3) the debtor's use or enjoyment of any income-producing property.
48. See Kimhi, 88 BU L Rev at 652 (cited in note 17).
49. See 11 USC § 901
50. (incorporating into Chapter 9 the absolute priority rule of 11 USC § 1129 (b) (2)).
51. See Kimhi, 88 BU L Rev at 652 (cited in note 17).
52. See, for example, Martin Shefter, Political Crisis Fiscal Crisis: The Collapse and Revival of New York City 106-07 (Columbia 1992).
53. McConnell and Picker, 60 U Chi L Rev at 468-70 (cited in note 14).
54. See Kimhi, 88 BU L Rev at 653-54 (cited in note 17) (explaining that both the court and creditors are subject to the tax rates submitted by the municipality in its proposed bankruptcy plan).
55. See, for example, In re New York City Off-Track Betting Corp, 427 BR 256, 264-65 (Bankr SDNY 2010);
56. In re City of Vallejo, 403 BR 72, 75-76 (Bankr ED Cal 2009).
57. 11 USC § 109 (c) (3).
58. 11 USC § 101 (32) (C) (ii).
59. See also In re City of Vallejo, 408 BR 280, 289-90 (BAP 9th Cir 2009).
60. See In re City of Bridgeport, 129 BR 332, 337-39 (Bankr D Conn 1991).
61. For further discussion of the imminence requirement, see In re Hamilton Creek Metropolitan District, 143 F3d 1381, 1386-87 (10th Cir 1998).
62. 11 USC § 109 (c) (5) (B).
63. 165 BR 60 (Bankr D NH 1994).
64. 11 USC § 943 (b) (7).
65. For an analysis of the "best interests" requirement and its potential for use as a judicial tool, see McConnell and Picker, 60 U Chi L Rev at 465-67, 474-75 (cited in note 14). Other commentators have also noted the judicial discretion over municipal resource adjustments inherent in determining whether the standard for confirmation has been satisfied.
66. See, for example, David L. Dubrow, Chapter 9 of the Bankruptcy Code: A Viable Option for Municipalities in Fiscal Crisis?, 24 Urban Law 539, 582 (1992).
67. 11 USC § 1129 (b) (1).
68. This provision is incorporated into Chapter 9 by 11 USC § 901 (a).
69. 114 F2d 563 (9th Cir 1940).
70. Fano was cited, along with Kelley v Everglades Drainage District, 319 US 415 (1943) (per curiam), in the legislative history of Chapter 9 to elucidate the meaning of the "best interests" of creditors.
71. See 124 Cong Rec 32403 (Sept 28, 1978) (Rep Edwards). Commentators disagree on the extent to which those citations should control application of the standard.
72. Compare McConnell and Picker, 60 U Chi L Rev at 465-66 (cited in note 14)
73. with Kordana, 83 Va L Rev at 1060-66 (cited in note 17).
74. Fano, 114 F2d at 565-66.
75. See McConnell and Picker, 60 U Chi L Rev at 466 (cited in note 14).
76. Kordana, 83 Va L Rev at 1058-59 & n 116 (cited in note 17)
77. citing Meat Cutters Union Local 81 v NLRB, 458 F2d 794, 798 (DC Cir 1972).
78. For examples of academic attempts to analyze judicial behavior, see Frederick Schauer, Incentives, Reputation, and the Inglorious Determinants of Judicial Behavior, 68 U Cin L Rev 615, 625-34 (2000);
79. Christopher R. Drahozal, Judicial Incentives and the Appeals Process, 51 SMU L Rev 469, 478-91 (1998);
80. Clayton P. Gillette, Lock-In Effects in Law and Norms, 78 BU L Rev 813, 822-26 (1998);
81. Jonathan R. Macey, Judicial Preferences, Public Choice, and the Rules of Procedure, 23 J Legal Stud 627, 630-32 (1994);
82. Richard A. Posner, What Do Judges and Justices Maximize? (The Same Thing Everybody Else Does), 3 S Ct Econ Rev 1, 31-41 (1993).
83. 11 USC § 109 (c) (2).
84. See In re County of Orange, 183 BR 594, 604-05 (Bankr CD Cal 1995).
85. For examples of general authorization statutes, see Cal Gov Code § 53760;
86. Colo Rev Stat Ann § 32-1-1403;
87. NJ Stat Ann § 52:27-40.
88. 183 BR 594 (Bankr CD Cal 1995).
89. See In re Allegheny-Highlands Economic Development Authority, 270 BR 647, 648-49 (Bankr WD Va 2001).
90. See H. Slayton Dabney Jr, et al, Municipalities in Peril: The ABI Guide to Chapter 9 95-111 (American Bankruptcy Institute 2010).
91. See Ga Code Ann § 36-80-5:
92. 11 USC § 109 (c).
93. For an example of how a state creates local subdivisions, see Cal Gov Code § 23001.
94. For an example of how a state defines a county and grants counties with certain powers, see Cal Gov Code §§ 23003-04.
95. For an example of how states grant local public entities the ability to file a petition for federal bankruptcy, see Cal Gov Code § 53760.
96. See United States v Bekins, 304 US 27, 47-53 (1938). The Court had earlier declared such an extension unconstitutional.
97. See Ashton v Cameron County Water Improvement District No. One, 298 US 513, 527-32 (1936). It remains unclear whether the Bekins decision was motivated more by a change in the statute or in membership of the Court.
98. See Bankruptcy Law Revision: Report of the Committee on the Judiciary Together with Separate, Supplemental, and Separate Additional Views, HR Rep No 95-595, 95th Cong, 1st Sess 398 (1977)
99. reprinted in 1978 USCCAN 6354.
100. In re City of Vallejo, 403 BR 72, 75-76 (Bankr ED Cal 2009).
101. See Clayton P. Gillette, Can Public Debt Enhance Democracy?, 50 Wm & Mary L Rev 937, 937, 987-88 (2009). Here, I assume that the centralized governments occupy that role, and I ask how bankruptcy law affects the manner in which they play it.
102. This is the basis for optimal allocation of local public goods, as laid out in the classic work on the subject, Charles M. Tiebout, A Pure Theory of Local Expenditures, 64 J Polit Econ 416, 418 (1956) (indicating conditions under which potential residents could migrate to a jurisdiction that offered their preferred public goods at an acceptable tax price).
103. For a discussion of the efficient localized delivery of public goods, see Oates, 12 Intl Tax & Pub Fin at 352-56 (cited in note 24).
104. See Clayton P. Gillette, Fiscal Home Rule, 86 Denver U L Rev 1241, 1242-44 (2009).
105. For a discussion of the effects of externalizing the costs of localities' initiatives, see Oates, 12 Intl Tax & Pub Fin at 354 (cited in note 24).
106. See Joint Committee on Taxation, Estimates of Federal Tax Expenditures for Fiscal Years 2010-2014, Joint Comm Rep No 3-10, 111th Cong 2d Sess, 51 table 1(2010), online at http://www.jct.gov/publications.html?func=showdown&id= 3717 (visited Nov. 15, 2011).
107. See, for example, Peter Fortune, Municipal Debt Finance: Implications of Tax-Exempt Municipal Bonds, in Gerald J. Miller, ed, Handbook of Debt Management 57, 88 (Marcel Dekker 1996).
108. For a discussion of the ineffectiveness of debt limitations, see Richard Briffault, Foreword: The Disfavored Constitution: State Fiscal Limits and State Constitutional Law, 34 Rutgers L J 907, 910, 920-25 (2003).
109. See also Amdursky and Gillette, Municipal Debt Finance Law at 219-21 (cited in note 26);
110. Robert H. Bowmar, The Anachronism Called Debt Limitation, 52 Iowa L Rev 863, 868-90 (1967). Widespread judicial acknowledgement that "subject to appropriation" debt, discussed above, falls outside state constitutional debt limits serves as a prime example of the diluted effect of debt limitations.
111. See Amdursky and Gillette, Municipal Debt Finance Law at 181-88 (cited in note 26) (describing how debt has been interpreted only to comprise obligations payable from the ad valorem property tax). Nevertheless, interest on the bonds would satisfy the requirements for the tax exemption if the funded facilities were governmentally owned and operated.
112. *2-3, 9-13 (2006)
113. (available on WestLaw at 2006 WL 2925866).
114. See William Selway and Brendan A. McGrail, Build America Bonds' End Poised to Batter Muni Market, Bus Wk (Dec. 23, 2010), online at http://www.businessweek.com/news/2010-12-23/build-america-bonds-end-poised-to- battermuni-market.html (visited Nov. 15, 2011).
115. See, for example, Kimhi, 27 Yale J Reg at 360 (cited in note 18).
116. See Seymour P. Lachman and Robert Polner, The Man Who Saved New York: Hugh Carey and the Great Fiscal Crisis of 1975 89 (SUNY 2010).
117. Mary Williams Walsh and Campbell Robertson, Just before Deadline, County in Alabama Delays Bankruptcy Move, NY Times B1 (July 29, 2011) (explaining that Jefferson County was in financial trouble because of mismanaged sales of debt to finance a sewage system renewal project and that the governor was considering helping the county secure access to additional funds because he feared the negative repercussions of a default). Notwithstanding the proposals, Jefferson County ultimately did file for bankruptcy after negotiations with creditors reached an impasse.
118. *11 (Bankr ND Ala);
119. Mary Williams Walsh, Alabama Governor Fails to Prevent County's Record $4 Billion Bankruptcy Filing, NY Times A16 (Nov. 10, 2011).
120. For a discussion of the relatively low level of disclosure in the municipal securities market, see Theresa A. Gabaldon, Financial Federalism and the Short, Happy Life of Municipal Securities Regulation, 34 J Corp L 739, 746-52 (2009).
121. See Erik Wibbels, Bailouts, Budget Constraints, and Leviathans: Comparative Federalism and Lessons from the Early United States, 36 Comp Polit Stud 475, 488 (2003).
122. See Edward M. Gramlich, New York: Ripple or Tidal Wave? The New York City Fiscal Crisis: What Happened and What Is to Be Done?, 66 Am Econ Rev 415, 423-26 (1976).
123. See David S. Kidwell and Charles A. Trzcinka, Municipal Bond Pricing and the New York City Fiscal Crisis, 37 J Fin 1239, 1246 (1982).
124. See Halstead, Hegde, and Klein, 39 Fin Rev at 293, 313 (cited in note 21).
125. *20-21 (unpublished manuscript, Jan 2005), online at http://myweb.clemson.edu/~maloney/papers/muni-financial- distress.pdf (visited Nov. 16, 2011).
126. Dungey, et al, 2 J Fin Stab 19 (cited in note 21).
127. Christopher K. Ma, Ramesh P. Rao, and Richard L. Peterson, The Resiliency of the High-Yield Bond Market: The LTV Default, 44 J Fin 1085, 1085-86, 1096 (1989).
128. See Gerald R. Ford, Remarks and a Question-and-Answer Session at the National Press Club on the Subject of Financial Assistance to New York City (Oct. 29), in 1975 Pub Papers 1729, 1733.
129. See New York City Seasonal Financing Act of 1975, Pub L No 94-143, 89 Stat 797 (1975)
130. codified at 31 USC § 1501 et seq (1976).
131. See also Gerald R. Ford, Statement on Measures Taken to Improve the Financial Situation of New York City (Nov. 26), in 1975 Pres Pub Papers 1902, 1904.
132. See, for example, Impact of the New York City Fiscal Crisis on the Federal Budget, Special Hearing before the House Committee on the Budget, 94th Cong, 1st Sess 18-22 (1975) (testimony of Otto Eckstein, President's Council of Economic Advisors).
133. See Lachman and Polner, Hugh Carey at 147-48 (cited in note 89).
134. Shefter, Political Crisis at 128 (cited in note 41).
135. See also Jonathan Soffer, Ed Koch and the Rebuilding of New York City 117 (Columbia 2010):
136. Ester R. Fuchs, Mayors and Money: Fiscal Policy in New York and Chicago 90 (Chicago 1992).
137. See Lachman and Polner, Hugh Carey at 132 (cited in note 89).
138. Even at the early stages of what was seen as an impending crisis in municipal debt, Representative Barney Frank explicitly advocated some form of federal guarantee for municipal debt. See Andrew Ackerman, Treasury, Fed Eye Guaranty for Munis, Bond Buyer (May 19, 2009), online at http://www.bondbuyer. com/issues/118-95/-303539-1.html (visited Dec. 29, 2011).
139. See Saul Levmore, Coalitions and Quakes: Disaster Relief and Its Prevention, 3 U Chi Roundtable 1, 17 (1996).
140. See, for example, Fuchs, Mayors and Money at 88 (cited in note 105).
141. The New York City Seasonal Financing Act of 1975, Pub L No 94-143, 89 Stat 797 (1975)
142. codified at 31 USC § 1501 et seq (1976) (expired 1978).
143. See Donna E. Shalala and Carol Bellamy, A State Saves a City: The New York Case, 1976 Duke L J 1119, 1131.
144. See, for example, Kenneth R. Feinberg, Speech: Negotiating the September 11 Victim Compensation Fund of 2001: Mass Tort Resolution without Litigation, 19 Wash U J L & Policy 21, 28 (2005).
145. See Actions Taken by Five Cities to Restore Their Financial Health, Hearing before the Subcommittee on the District of Columbia of the Committee on Government Reform and Oversight, 104th Cong, 1st Sess 2 (1995) ("Five Cities Hearings").
146. See, for example, Robert P. Inman, Transfers and Bailouts: Enforcing Local Fiscal Discipline with Lessons from U. S. Federalism, in Jonathan Rodden, Gunnar S. Eskeland, and Jennie Litvack, eds, Fiscal Decentralization and the Challenge of Hard Budget Constraints 35, 59 (MIT 2003);
147. Five Cities Hearings at 2 (cited in note 115).
148. District of Columbia Financial Responsibility and Management Assistance Act of 1995, Pub L No 104-8, 109 Stat 97, 121
149. See, for example, Five Cities Hearings at 2 (cited in note 115).
150. See, for example, Fla Stat Ann §§ 218.50-218.504;
151. NY Local Finance Law § 85.80;
152. Note, Missed Opportunity: Urban Fiscal Crises and Financial Control Boards, 110 Harv L Rev 733, 734 (1997).
153. Inman, Transfers and Bailouts at 60-61 (cited in note 116).
154. See, for example, Oates, 12 Intl Tax & Pub Fin at 355 (cited in note 24);
155. Yingyi Qian and Barry R. Weingast, Federalism as a Commitment to Preserving Market Incentives, 11 J Econ Persp 83, 88-90 (1997).
156. See Jonathan A. Rodden, Hamilton's Paradox: The Promise and Peril of Fiscal Federalism 271-72 (Cambridge 2006);
157. Daniel Treisman, The Architecture of Government: Rethinking Political Decentralization 141-46 (Cambridge 2007);
158. Erik Wibbels, Federalism and the Politics of Macroeconomic Policy and Performance, 44 Am J Polit Sci 687, 698 (2000);
159. Francesca Fornasari, Steven B. Webb, and Heng-fu Zou, The Macroeconomic Impact of Decentralized Spending and Deficits: Interna tional Evidence, 1 Annals Econ & Fin 403, 404 (2000).
160. Fornasari, Webb, and Zou, 1 Annals Econ & Fin at 404 (cited in note 123).
161. See Timothy J. Goodspeed, Bailouts in a Federation, 9 Intl Tax & Pub Fin 409, 415 (2002).
162. See Rodden, Hamilton's Paradox at 153-87 (cited in note 123).
163. See Maya Jackson Randall, Fed's Net Soars on Crisis-Era Holdings, Wall St J A2 (Jan 11, 2011).
164. See Inman, Transfers and Bailouts at 39-41 (cited in note 116);
165. Robert P. Inman, Transfers and Bailouts: Institutions for Enforcing Local Fiscal Discipline, 12 Const Polit Econ 141, 145 (2001).
166. Thomas Romer and Howard Rosenthal, Bureaucrats versus Voters: On the Political Economy of Resource Allocation by Direct Democracy, 93 Q J Econ 563, 564 (1979).
167. For an application of the Romer-Rosenthal hypothesis, see Clayton P. Gillette, Direct Democracy and Debt, 13 J Contemp Legal Issues 365, 367 (2004).
168. See Kimhi, 88 BU L Rev at 670-72 (cited in note 17);
169. Note, 110 Harv L Rev at 734 (cited in note 120).
170. See, for example, Mich Comp Laws Ann § 141. 1515 (4);
171. Amdursky and Gillette, Municipal Debt Finance Law at 246-51, 255-58 (cited in note 26).
172. See Kimhi, 88 BU L Rev at 664-72, 683-84 (cited in note 17).
173. The Contracts Clause provides that "No State shall... pass any... Law impairing the Obligation of Contracts." US Const Art I, § 10, cl 1.
174. See McConnell and Picker, 60 U Chi L Rev at 479-81 (cited in note 14)
175. citing Ogden v Saunders, 25 US (12 Wheat) 213, 262 (1827).
176. 316 US 502 (1942).
177. See 11 USC § 903 (1).
178. See, for example, United States Trust Co of New York v New Jersey, 431 US 1, 17-21, 32 (1977).
179. See, for example, United Automobile, Aerospace, Agricultural Implement Workers of America International Union v Fortuño, 633 F3d 37, 42-45 (1st Cir 2011).
180. City of Trenton v State of New Jersey, 262 US 182, 185-87 (1923).
181. See McConnell and Picker, 60 U Chi L Rev at 442 (cited in note 14).
182. See, for example, Mary Williams Walsh, Cities in Debt Turn to States, Adding Strain, NY Times B1 (Oct. 5, 2010);
183. David Wessel, Local Debts Defy Easy Solution, Wall St J A2 (Sept 23, 2010).
184. See Fuchs, Mayors and Money at 88-91 (cited in note 105);
185. Michelle Kaske, Rendell Urges Harrisburg against Bankruptcy, Bond Buyer (June 10, 2010), online at http://www.bondbuyer.com/issues/119-359/harrisburg- 1013339-1.html (visited Nov. 17, 2011);
186. Walsh and Robertson, Just before the Deadline, NY Times at B1 (cited in note 90).
187. Paul Burton, Harrisburg Rips Up Its Blueprint for Recovery, Bond Buyer at 1 (cited in note 7).
188. Flushing National Bank v Municipal Assistance Corp, 358 NE2d 848, 855 (NY 1976).
189. See NY Const Art V, § 7 (protecting pension and retirement systems from any form of diminishment or impairment);
190. NY Retire & Soc Sec Law § 113 (prohibiting local municipalities from creating new retirement funds, but also preventing them from modifying existing funds).
191. *24-28 (University of Wisconsin-Madison, La Follette School of Public Affairs Working Paper No 2010-022, Oct. 2010), online at http://www.lafollette.wisc.edu/publications/workingpapers/reschovsky2010-022. pdf (visited Nov. 17, 2011).
192. Roderick M. Hills Jr, Compared to What? Tiebout and the Comparative Merits of Congress and the States in Constitutional Federalism, in William A. Fischel, ed, The Tiebout Model at Fifty: Essays in Public Economics in Honor of Wallace Oates 239, 248 (Lincoln Institute of Land Policy 2006).
193. Lachman and Polner, Hugh Carey at 162-64 (cited in note 89).
194. See Faitoute, 316 US at 504-07.
195. See Chemical Bank v Washington Public Power Supply System, 666 P2d 329, 342-43 (Wash 1983) (en banc).
196. See Monkkonen, The Local State at 81-101 (cited in note 12)
197. See also Walsh and Robertson, Just before Deadline, NY Times at B1 (cited in note 90);
198. Monkkonen, The Local State at 57-77 (cited in note 12).
199. For examples of restrictions on the ability of states to negotiate labor agreements with public sector unions, see 2011 Mich Comp Laws Ann § 141. 1519 (1) (k) (iv);
200. Wis Laws § 10;
201. David W. Chen, To Save Money, Mayor Urges Overhaul of City Pension Rules, NY Times A1 (Feb. 3, 2011).
202. See Shefter, Political Crisis at 7-12 (cited in note 41);
203. Kimhi, 88 BU L Rev at 671-72 (cited in note 17).
204. Indeed, I have argued to the contrary. See Clayton P. Gillette, Who Should Authorize a Commuter Tax?, 77 U Chi L Rev 223, 248 (2010);
205. Gillette, 86 Denver U L Rev at 1261 (cited in note 79).
206. See Gillette, 50 Wm & Mary L Rev at 975-81 (cited in note 76).
207. See Campbell Robertson and Mary Williams Walsh, Debt Crisis? Bankruptcy Fears? See Jefferson County, Ala., NY Times A13 (July 30, 2011);
208. *20-21 (cited in note 97).
209. This assumption is consistent with the literature. See Vicki Been, "Exit" as a Constraint on Land Use Exactions: Rethinking the Unconstitutional Conditions Doctrine, 91 Colum L Rev 473, 521-28 (1991).
210. See 11 USC 8 §§ 362 (a).
211. This provision is incorporated into Chapter 9 by 11 USC § 901 (a).
212. See, for example, Va Code § 15. 2-2659.
213. See Note, 110 Harv L Rev at 735-38 (cited in note 120).
214. Shefter, Political Crisis at 166-67 (cited in note 41).
215. Soffer, Ed Koch at 120 (cited in note 104).
216. See Lachman and Polner, Hugh Carey at 111-12, 121 (cited in note 89).
217. See County of Nassau v Nassau County Interim Finance Authority, 920 NYS2d 873, 883-84 (NY S Ct 2011).
218. Howard Gillette Jr, Camden after the Fall: Decline and Renewal in a Post-industrial City 196 (Pennsylvania 2005).
219. Mich Comp Laws Ann § 141. 519 (1) (k).
220. See Jennifer Chambers, DPS Cuts Pay; Union Vows Fight: Contract Override to Spark Challenge of Roberts' Powers under New Law, Detroit News A1 (July 30, 2011).
221. See generally In re Jefferson County, 2012 WL 32921 (Bankr ND Ala).
222. See 11 USC § 903.
223. See Karen Pierog, Indiana Bill Would Allow Municipal Bankruptcy, Thomson Reuters News & Insight (Dec. 29, 2010), online at http://newsandinsight. thomsonreuters.com/Bankruptcy/News/2010/12-December/Indiana-bill-would-allow- municipal-bankruptcy/ (visited Nov. 17, 2011).
224. William A. Scott, The Repudiation of State Debts: A Study in the Financial History of Mississippi, Florida, Alabama, North Carolina, South Carolina, Georgia, Louisiana, Arkansas, Tennessee, Minnesota, Michigan, and Virginia 11 (Crowell 1893) (internal quotations omitted).
225. 53 Pa Cons Stat Ann § 5571. 180 The same legislation also threatens any city that does file with a loss of state funds. 72 Pa Cons Stat Ann § 1601-D.1:
226. See Corkery and Maher, Capital Files for Bankruptcy, Wall St J at A3 (cited in note 8).
227. See id. See also Kaske, Rendell Urges Harrisburg against Bankruptcy (cited in note 145).
228. See Gillette, Camden after the Fall at 195 (cited in note 172).
229. See Kate Linebaugh, Tax Dispute Squeezes Detroit's Neighbor, Wall St J A6 (Dec. 20, 2010).
230. See Dorothy A. Brown, Fiscal Distress and Politics: The Bankruptcy Filing of Bridgeport as a Case Study in Reclaiming Local Sovereignty, 11 Bankr Dev J 625, 634-37 (1995).
231. See Lachman and Polner, Hugh Carey at 88 (cited in note 89).
232. See Alex P. Kellogg, Detroit Schools on the Brink-Shrinking District Heads toward Bankruptcy to Gain Control of Its Costs, Wall St J A3 (July 21, 2009). municipality. Mich Comp Laws Ann § 141. 1222.
233. Under the new act, Mich Comp Laws Ann § 141. 1523, a state-appointed emergency manager may file for Chapter 9 bankruptcy only after she determines that no reasonable alternative exists, provides a written recommendation to the governor and state treasurer, and receives written approval from the governor. New Jersey requires the consent of the state's municipal finance commission.
234. NJ Stat Ann § 52:27-40.
235. See Brown, 11 Bankr Dev J at 638 (cited in note 185).
236. See, for example, Cal Gov Code § 53760;
237. Fla Stat Ann § 218.01.
238. For a detailed analysis of the econometric calculation of a municipality's revenue hill, see Haughwout, et al, 86 Rev Econ & Stat at 570-72 (cited in note 10).
239. See Reza Baqir, Districting and Government Overspending, 110 J Polit Econ 1318, 1351 (2002).
240. For an example of one argument in that debate, see David A. Skeel Jr, States of Bankruptcy, 79 U Chi L Rev (forthcoming 2012).
241. See Jeb Bush and Newt Gingrich, Better Off Bankrupt: States Need a New Way to Deal with Budget Crises, LA Times 19 (Jan 27, 2011);
242. Mary Williams Walsh, A Path Is Sought for States to Escape Their Debt Burdens, NY Times A 1 (Jan 21, 2011).
243. See Wibbels, 36 Comp Polit Stud at 490-91, 497-98 (cited in note 92).
244. For a discussion of how state infrastructure investment contributed to the debt crisis of the 1840s, see William B. English, Understanding the Costs of Sovereign Default: American State Debts in the 1840's, 86 Am Econ Rev 259, 263-66 (1996).
245. Department of the Treasury, Historical Debt Outstanding-Annual 1791-1849 (TreasuryDirect 2008), online at http://www.treasurydirect.gov/govt/reports/pd/ histdebt/histdebt-histo1.htm (visited Nov. 18, 2011).
246. Wibbels, 36 Comp Polit Stud at 494 table 1 (cited in note 92).
247. See McLean and Nocera, All the Devils Are Here at 353 (cited in note 22).