Recognizing Taxpayers as Stakeholders in Municipal Bankruptcies

Recent large municipal bankruptcy cases have called into question the rights of debtor-cities to impair their capital markets creditors, on the one hand, and beneficiaries of their unfunded public pension promises, on the other. As I show in a companion work, federal bankruptcy law generally allows debtors to impair each of these obligations. However, heightened judicial scrutiny may apply to plans that are crammed down on public pension benefit recipients. Moreover, debtors and their stakeholders may still agree for a variety of reasons to pursue restructuring plans that preserve public pensions and impair the claims of capital markets creditors. But for all the focus on these two dominant creditor classes, an important stakeholder — the debtor-city's taxpaying residents — has been largely overlooked in the discourse. This essay considers whether and to what extent this constituency should be viewed as a party to the bankruptcy proceedings