40 Years Later: AN ANALYSIS OF CURRENT MUNICIPAL BANKRUPTCY CASES

Municipal bankruptcies, known as Chapter 9 filings in federal bankruptcy court, have escalated in recent years due to the current economic climate of lower federal and tax revenues coupled with the increased costs of delivering services to citizens. In 1934, Congress enacted the Municipal Bankruptcy Act to give states a mechanism for local governments to deal with the increasing rates of tax delinquency, decreasing property values, increasing demand for public services, and growing unemployment problems brought on by the Great Depression. In 1973, the Advisory Commission on Intergovernmental Relations received a request by Congress to study financial emergencies in local governments. The Commission maintained that the study of financial emergencies must take into account a wide range of municipal interests from the citizenry who received and purchased the services; the bondholders who invested in the entity; and the vendors who expected payment for their services required by the local government. The Commission concluded that unsound financial management stood out as one of the most important potential causes of financial emergencies in local governments.