A logical question facing leaders and citizens of many cash-strapped Michigan municipalities is whether the State of Michigan will step in with rescue packages similar to the one contemplated in the City of Detroit bankruptcy case.
Last week, Michigan Governor Rick Snyder emphatically told the Detroit News, “No.”
Governor Snyder’s response is not surprising as any other answer would have been interpreted as encouraging other municipalities to request a bailout. However, the true test will come if other Michigan municipalities struggling with burdensome legacy costs
are allowed to enter chapter 9. Of course, Governor Snyder, or his successor, will play a key role in that decision as section 109(c) of the Bankruptcy Code provides that a municipality is only eligible for chapter 9 bankruptcy if state law specifically authorizes it to be a debtor. Under Michigan law, a municipality needs the governor’s written approval to file bankruptcy.
Despite Governor Snyder’s power over distressed municipalities, the question of whether the state government (or even the federal
government) should bail out other Michigan municipalities is not going away anytime soon.