Who Pays the Price? The Necessity of Taxpayer Participation in Chapter 9
24 Widener L.J. 81
39 Pages Posted: 13 Jun 2014 Last revised: 17 Mar 2015
Date Written: March 12, 2015
Even though taxpayers are not creditors and have no right to vote on a municipal plan of adjustment, bankruptcy courts should afford a presumption that they are parties in interest on the issue of feasibility of a plan. Without a party adverse to a plan settled by a city and its creditors, a bankruptcy court runs the risk confirming one that will ultimately fail because the ultimate stakeholders--a city's taxpayers--will not pay. In other words, while increased taxes and decreased municipal services are standard fare in recent Chapter 9 cases, with recognition as parties in interest, those who must pay more and receive less deserve a direct voice in the process.
In addition, an official committee of taxpayers whose professional expenses will be borne by the municipality should be appointed in sizable Chapter 9 cases. The cost of effective representation of collective taxpayer interests exceeds the benefit to any individual taxpayer. Such representation is a public good whose costs should be borne from the public fisc.
Keywords: Chapter 9, municipal bankruptcy, standing, party-in-interest, taxpayers
JEL Classification: K19, K39, L39
Suggested Citation: Suggested Citation