Policy Research

Is Bankruptcy the Answer for Troubled Cities and States?

David A. Skeel Jr.

Summary

The article examines the similarities of the Supreme Court’s decision on the National Federation of Independent Business v. Sebelius and the European Union’s response to its financially distressed countries. Both developments raise important questions about the role and limits of the United States federal government in state and municipal affairs. State intervention in struggling municipalities, including the emergency managers in Michigan, is analyzed.

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Policy Implications

If there state permits it, a struggling municipality can file for bankruptcy. However, there is no clear restructuring pathway if an entire state is in distress. Legislation calling for a state bankruptcy option has been presented in the past but failed to gain traction. As both parties in congress have lost interest in state restructuring, improving municipal bankruptcy options has become the focus.