Municipal fiscal insolvency has become the central challenge facing American cities. Municipal fiscal insolvency is the result of many factors, including risk taking, fiscal mismanagement, corruption, and the absence of political will to make hard choices. There are also structural factors at play-specifically, local government organization and the fiscal constraints states place on their subdivisions play a significant role in the ability of municipalities to achieve sustainability and growth. These factors are rarely included in the discussion on municipal fiscal insolvency, and understandably so. It is hard to determine the role that local government organization plays in undermining the fiscal health of a municipality relative to issues such as the pension crisis or corruption. While most municipalities address events of fiscal crisis through negotiation and the intervention of states, a small but increasing number have turned to Chapter 9 bankruptcy. While bankruptcy is controversial, it holds many advantages for cities and their creditors. However, there is more that Chapter 9 could do if bankruptcy courts were allowed to require municipalities and states to address the structural drivers that might accrue to local government organization. This would require a significant reworking of Chapter 9, however, and would implicate serious constitutional issues. Without the exploration of these changes, bankruptcy courts cannot ensure that the structural determinants that might have contributed to the default in the first place don't happen again.
Tyson, Christopher J., "Exploring the Boundaries of Municipal Bankruptcy" (2014). All Scholarship. 13.