Available at: https://ir.lawnet.fordham.edu/uljo
Abstract:
Litigation against President Trump for withholding federal funds from cities in his “war on woke” and sanctuary cities has taken place either in Article III courts under the Administrative Procedure Act or in the Court of Federal Claims under the Tucker Act. However, there is a third place to resolve these disputes and allocate who bears the consequences of Presidential action that no one has yet discussed: bankruptcy courts. Federal grants make up about one-third of the average city’s budget, and the President could render a city insolvent by swiftly cutting off a city’s federal grants, through a process scholars call “appropriations presidentialism,” before a city could seek to enjoin such an action. When federal grants are cut off, thousands of workers, vendors, and creditors who rely on those funds as a source of payment would most likely file suit against these cities within weeks to seek payment. In other words, without federal grants, a city’s financial position would be like an “ice cube” rapidly melting away in the hot summer sun. This Essay argues that cities facing “governance by extortion” can use the filing of bankruptcy as an act of political resistance to manage a city’s presidentially induced bankruptcy. In many ways, bankruptcy courts are in a better position than Article III courts to provide relief in this situation. Bankruptcy courts have expertise that Article III courts lack and that indebted cities will need to handle, including creditor coordination problems that are likely to occur when federal grant funds run out. This Essay’s exploration of bankruptcy’s relationship with administrative law expands conversations about the institutional capacity of the judicial system to manage the effects of appropriations presidentialism. Additionally, this Essay situates bankruptcy as a device for coordinating political resistance to governance by extortion.
Summary:
This article proposes a novel use for municipal bankruptcy under Chapter 9. Rather than viewing bankruptcy as merely a response to traditional fiscal distress, the author argues that a city could use Chapter 9 as a defensive mechanism if a President attempted to coerce political compliance by withholding federal grant funding.
The article describes this phenomenon as "appropriations presidentialism"—the use of executive control over federal spending to pressure state and local governments into adopting federal policy preferences. Because federal grants constitute a substantial portion of many municipal budgets, a sudden cutoff could create an immediate liquidity crisis. The author contends that bankruptcy courts, with their expertise in coordinating competing creditor interests and managing financial distress, may be better suited than traditional Article III courts to address the practical fallout from such funding interruptions.
Under this framework, Chapter 9 becomes not merely a financial restructuring tool but a form of institutional resistance. A municipality could invoke bankruptcy protection to stay creditor collection efforts, preserve public services, and create breathing room while broader constitutional and administrative-law disputes over federal funding are resolved elsewhere.
Commentary:
This is an intellectually interesting article, but it is built on multiple layers of hypotheticals stacked atop one another.
First, it assumes that "appropriations presidentialism" is actually weaponized against a particular city in a manner severe enough to create genuine insolvency. Second, it assumes that the affected municipality is legally authorized under state law to file Chapter 9. As consumer bankruptcy attorneys know, Chapter 9 eligibility is extraordinarily restrictive. Municipalities cannot simply decide to file bankruptcy because they are unhappy with federal policy; they must satisfy the requirements of 11 U.S.C. § 109(c), including specific state authorization.
Third, the article assumes the city possesses the political will to file Chapter 9. That may be the largest hypothetical of all.
Municipal bankruptcy remains remarkably rare. Even when cities face severe financial distress, elected officials often resist bankruptcy because of its stigma, limitations, political consequences, potential effects on future borrowing, and the perception that local government has failed. Detroit, Stockton, San Bernardino, and Jefferson County demonstrate that municipalities generally view Chapter 9 as a last resort rather than a strategic political tool.
As a result, the article's thesis requires not merely financial distress but a unique convergence of legal authority, political incentives, and fiscal necessity.
The Missing Discussion of Section 525(a)
One surprising omission is the absence of any discussion of 11 U.S.C. § 525(a), which provides that:
"a governmental unit may not deny, revoke, suspend, or refuse to renew a license, permit, charter, franchise, or other similar grant to ... a person that is or has been a debtor under this title."
The problem, however, is that municipalities likely receive no protection from this provision.
Under 11 U.S.C. § 101(41), a "person" includes an individual, partnership, or corporation, but specifically does not include a governmental unit. Meanwhile, 11 U.S.C. § 101(27) broadly defines "governmental unit" to include municipalities.
Accordingly, even if a city filed Chapter 9, § 525(a) would not appear to prohibit the federal government from denying or terminating grants on account of the municipality's bankruptcy status. Congress extended bankruptcy anti-discrimination protections to individuals and business entities, but not to governmental debtors.
That omission may be entirely logical given the rarity of Chapter 9 cases, but it weakens any argument that bankruptcy itself could protect a municipality from future federal funding decisions.
Strategic Bankruptcy as Political Resistance
The article's broader theme—using bankruptcy as political resistance—is intriguing because bankruptcy has historically served precisely that role for ordinary Americans.
Consumer bankruptcy exists largely because Congress concluded that overwhelming debt can threaten not only individual financial health but also broader economic participation and social stability. In that sense, bankruptcy has always been a mechanism through which debtors resist economic coercion.
Ironically, the article may overestimate the likelihood of municipalities using bankruptcy for political resistance while underestimating the historical role consumer bankruptcy already plays in that function.
The challenge, of course, is scale.
A Chapter 9 filing by a major city such as San Francisco, Chicago, or New York would instantly become national news and force policymakers to confront the underlying dispute. By contrast, thousands of individual Chapter 7 and Chapter 13 filings, while collectively significant, rarely generate the same level of public attention.
Moreover, municipal bankruptcies involve billions of dollars and essential public services. Individual bankruptcies generally involve much smaller debts dispersed among countless debtors. Organizing enough consumers to engage in a coordinated bankruptcy-based protest would be extraordinarily difficult, and the aggregate financial impact might still be insufficient to command the same attention as a major municipal filing.
Yet there is an interesting parallel. Just as the author views Chapter 9 as a potential response to governmental pressure, many consumer debtors already use Chapters 7 and 13 to resist financial pressures imposed by circumstances beyond their control—medical debt, student loans, predatory lending, wage garnishments, or economic dislocation. Bankruptcy has long functioned as a safety valve against economic coercion, even if it rarely receives that political label.
Final Thoughts
The article succeeds in provoking thought about the intersection of bankruptcy, federalism, and executive power. But its practical significance may be limited because every step of the proposed path requires another unlikely condition to occur. A President must aggressively weaponize federal funding. A city must be sufficiently dependent on those funds to become insolvent. State law must authorize Chapter 9. Local officials must be willing to endure the stigma and constraints of bankruptcy. And the bankruptcy itself must meaningfully alter the political calculus.
That is a lot of "ifs."
Still, the article performs a valuable service by reminding bankruptcy practitioners that insolvency is not merely a financial phenomenon. Bankruptcy reallocates power. Whether the debtor is an individual, a corporation, or a municipality, bankruptcy often serves as a mechanism through which parties facing overwhelming leverage can force a collective reckoning. The question raised here is not whether bankruptcy can do that—it clearly can—but whether any city would actually be willing to pay the price necessary to use Chapter 9 as a form of political resistance.
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