Using In re City of San Bernardino as a springboard, this Note explores both the descriptive and analytic dimensions of a municipality seeking relief from its pension woes within the context of Chapter 9 of the Bankruptcy Code. As a descriptive matter, this Note illustrates that municipalities need alternative solutions to address the growing public pension problem besides issuing municipal bonds. Given the structure of certain public defined benefit pension systems, the strategy of issuing municipal bonds to raise cash has substantial disadvantages. In certain contexts, Chapter 9 of the Bankruptcy Code provides a significantly better alternative. Unlike a business that files for relief under Chapter 11 of the Bankruptcy Code, there are many provisions unique to Chapter 9 that make burdensome pension obligations easier to deal with for a municipality. This descriptive account sets the stage for the Note's core analytic inquiry: whether the automatic stay suspends a municipality's obligation to provide funding to a state pension trust; or, in the alternative, whether the suspension of pension obligations to a state pension trust gives rise to “cause” for relief from the automatic stay. This analytic inquiry is structured around the specific arguments set forth in the city of San Bernardino, California's bankruptcy case.
Reconciling the Municipal Pension Problem with Chapter 9's Automatic Stay: A Case Note on In Re City of San Bernardino,
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