Mason Professor Knows the Mysteries of Municipal Bankruptcy—He Helped Write the Law

Posted: September 13, 2013 at 5:00 am, Last Updated: September 16, 2013 at 6:49 am

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By Buzz McClain

Professor Frank Shafroth with the framed Bankruptcy Law he helped write. Creative Services photo

Professor Frank Shafroth with the framed Municipal Bankruptcy Law he helped write. Creative Services photo

Who else has an autographed copy of the municipal bankruptcy law on their office wall? And who else may be qualified to explain the meaning behind the law being debated in Detroit and other fiscally troubled cities?

George Mason University public and international affairs professor Frank Shafroth keeps the framed memento on the wall of his Arlington Campus office in the State and Local Government Leadership Center, where he is director, as a reminder of the nine years he spent helping write it. The law­­—really, a series of arcane, out-of-context amendments that define municipality, debtor, and who gets paid­—is autographed by “Judge” Howell Heflin, the Alabama senator who helped revamp the code in 1988.

Shafroth, then the director of federal relations for the National League of Cities, not only lobbied to change the terms of Chapter 9, but helped construct it. “I spent nine years on the Hill pointing out that if, say, Eastern Airlines goes bankrupt, they can fly all the planes down to Houston, take all the keys, go into U.S. bankruptcy court and say, ‘Your honor, you can sell the planes and distribute the proceeds to all the creditors’ and it’s all taken care of.

“But if Houston goes bankrupt, when someone dials 911, you have to respond. You have to put out the fire, you have to apprehend the bad guy, whatever it is, it’s got to work.”

Shafroth, who was chief of staff for Virginia congressman Jim Moran for three years, is in demand these days as an observer on the proceedings in Detroit and elsewhere, commenting on the daily developments on the air and in print, and with his own emailed blog.

And later in September, the State and Local Government Leadership Center will release a two-year study funded by the MacArthur Foundation that reviews fiscal crises in six major urban centers, including some of those preparing for bankruptcy.

The changes in the municipal bankruptcy law, Shafroth says, were intended to correct a previous change.

“Every state defines cities and counties as corporations,” he says. “In 1979, Congress asked why we have so many federal laws dealing with corporate bankruptcies. The idea was to streamline and simplify, so they eliminated Chapter 9 from municipalities. No one wondered, is General Motors like Chicago?

“In one fell swoop, the ability for municipalities to file for bankruptcy protection disappeared. It took nine years to get Congress to understand that a municipal corporation must provide services even if it’s out of money.”

It took nine years of lobbying to pass the page-and-a-half bill, signed into law by President Ronald Reagan, but even those who labored on it aren’t sure what it means. The country is about to find out, however.

A U.S. bankruptcy judge recently ruled that San Bernardino, California, is eligible for bankruptcy. Jefferson County in Alabama filed for bankruptcy in 2011.

“Jefferson County, San Bernardino, Detroit­—those three cases are going to decide what Congress intended,” Shafroth says.

Those interested in receiving Shafroth’s daily eblog should send an email address to shafrot@gmu.edu.

Write to Buzz McClain at bmcclai2@gmu.edu

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