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INTRODUCTION
Prichard, Alabama is a city of approximately 23,0001 residents in the southwestern corner of the state. A dwindling population2 and $3.9 million of debt forced Prichard to file for bankruptcy in 1999.3 After emerging from bankruptcy in 2007,4 the city filed again in October of 2009, this time in the shadow of a lawsuit by pensioners questioning the solvency of their city pensions.5 Prichard stopped paying pensions and the bankruptcy judge denied the pensioners' claim to their pensions during the proceedings.6 The judge dismissed the case in March of the following year; however, Prichard failed to resume payments.7 Nearly two years after pension payments stopped, Prichard announced a settlement with its retirees that would give them only one third of their promised pay.8 Prichard is currently awaiting a ruling from the Alabama Supreme Court to determine whether their bankruptcy case can proceed.9
The case of Prichard, Alabama is certainly unique in its circumstances, history, and financial and political challenges. It highlights, however, what is likely to be an increasingly frequent problem for municipalities across the United States.10 The problems of municipalities that are unable to pay their pension obligations are similar to the basic problem of any debtor in bankruptcy: the debtor (in this case the municipality) has taken on more debt (including pension obligations, among other debt) than it can afford to pay. However, these problems are also uniquely political and have a very direct public impact.11 Municipalities are faced with the conundrum of how to provide adequate protection for pensioners without either (a) crippling municipal services and the basic operations of their governmental unit or (b) disproportionately pushing pension obligations onto the current and future municipal workforce and future taxpayers.
The state law tools available for municipalities to manage these pension obligations are limited.12 Chapter 9, the portion of the Bankruptcy Code governing municipal bankruptcy, offers what may be a last resort for many municipalities unable to pay pension obligations. "Chapter 9 is intended to enable a financially distressed municipality to 'continue to provide its residents with essential services such as police protection, fire protection, sewage and garbage removal, and schools[],' while it works out a plan to adjust its debts and obligations."13 Importantly, federal law requires that states authorize municipal...