Fiscal Distress and Politics: The Bankruptcy Filing of Bridgeport as a Case Study in Reclaiming Local Sovereignty

Abstract

On June 6, 1991, Bridgeport, Connecticut became the largest city ever to file for bankruptcy protection' under chapter 9 of the Bankruptcy Code. Less than six months later, Bridgeport's Mayor, Mary Moran, was defeated in her bid for reelection. Using a public choice lens, this paper explores the dynamics of how the state forced Mayor Moran to file for chapter 9 protection, even though it was an act of political suicide. Bridgeport's chapter 9 filing presents one of the most recent manifestations of the conflict between city and state power. When Bridgeport began to slide into fiscal decline, Connecticut's elected officials exploited the situation by enacting legislation which placed a state oversight board in complete control of the city's finances. When the Mayor and the state oversight board could not agree over Bridgeport's 1992 budget, the Mayor realized that the state board would seek a writ of mandamus to force her to increase the property taxes of Bridgeport's citizens. Since raising taxes was equivalent to political suicide, Mayor Moran had little recourse but to seek chapter 9 protection in an attempt to protect her own political future. The chapter 9 filing stayed all pending litigation and prevented any new litigation from proceeding against Bridgeport -- including a writ of mandamus to increase city property taxes. Although the chapter 9 filing was ultimately rejected by the bankruptcy court, it represented a high stakes poker game between the state and the city in which the citizens of Bridgeport were the ultimate losers.