Media Teleconference Features Bankruptcy Experts Examining Municipal Financial Distress

Wednesday, October 7, 2009
Declining housing values, restrictive credit markets, slowed consumer spending and rising unemployment are leading some cities and municipalities to consider the option of filing for chapter 9 bankruptcy. Listen to a panel of bankruptcy experts explain the causes of a municipal bankruptcy filing, its effects on a municipality and their thoughts on whether a potential wave of chapter 9 filings is likely in the near future.

Bruce Bennett is a founding partner of Hennigan, Bennett & Dorman LLP and heads its Business Reorganization & Bankruptcy department. Bennett was the lead debtor’s counsel in the country's largest chapter 9 bankruptcy, In re County of Orange, Calif., which commenced following a $1.7 billion loss in the county’s investment pools. 

Lisa Hill Fenning is a partner in the bankruptcy and corporate reorganization practice group at Arnold & Porter LLP. From 1985 to 2000, Fenning served as a U.S. Bankruptcy Judge for the Central District of California. 
Marc Levinson is a partner in the Restructuring Group of Orrick, Herrington & Sutcliffe LLP. He is the lead attorney in the chapter 9 filing of the City of Vallejo, Calif.
While consumers and businesses look to weather the economic downturn, many cities and municipalities are also seeking to avoid severe financial distress. A recent report by the National League of Cities found that cities are only in the early stages of registering the effects of the nation's economic downturn, and that the ability of cities to meet their financial needs will only worsen through 2010 and beyond. Spending pressures on municipalities and cities, according to the report, stem from declining local economic health, rising costs of providing services, public safety and infrastructure costs, and employee-related costs for health care, pensions and wages. Like businesses, tightened credit markets have made it increasingly difficult for municipalities to maintain debt-funded projects, particularly for infrastructure, and have resulted in higher debt costs. 
Though there have been fewer than 600 municipal bankruptcies since chapter 9 became law in the 1930s, some cities, towns and municipalities that have received a financial shock amidst the economic downturn are increasingly considering bankruptcy as an option. In contrast to consumer or business bankruptcies, chapter 9 does not contain a provision in the law for liquidation of the assets of the municipality and distribution of the proceeds to creditors. Additionally, the Tenth Amendment limitation on federal powers (including the power to create and govern municipalities) means that in a chapter 9 case the bankruptcy court has very little involvement, if any, with the operation of a municipality. Click here to read the eligibility requirements of a municipality to file under chapter 9 of the Bankruptcy Code.
A panel of bankruptcy experts shares their insights on the chapter 9 process and their thoughts on whether a potential wave of chapter 9 filings is likely in the near future.