New Report: “Intervention Bankruptcy” Model for Insolvent Municipalities

By combining federal bankruptcy and state intervention, this innovative approach strengthens government’s ability to address municipal insolvency effectively

NEW YORK, NY  — Across the country, numerous local governments teeter on the brink of insolvency. But recent experience and much legal scholarship cast doubt on the effectiveness of traditional municipal bankruptcy. A new Manhattan Institute report by senior fellows Daniel DiSalvo and Stephen Eide proposes a more effective approach, combining federal bankruptcy and state intervention, which they call “intervention bankruptcy.”

The risk of municipal insolvency is greater today than at any time since the Great Depression, and for various structural reasons, we can expect many more cities to suffer fiscal distress in the coming years. Learning from the recent experiences of some bankrupt cities, DiSalvo and Eide argue that state governments should intervene early and appoint a receiver before allowing a local government entity to petition for federal bankruptcy. Further, given local political pressures, no municipal bankruptcy should be authorized if local officials will direct it.

Click here to read the full report.