Testing the Waters: Expanding Chapter 9 Bankruptcy to Encourage Treatment of Chemically Contaminated Drinking Water

Chemical contamination of drinking water supplies has become a significant issue across the globe with serious health and safety impacts. While the true extent of the impact is still being determined, costs associated with remediation efforts to clean up are astonishing. Municipalities, in particular cities, towns, and counties, suffer significant damages both through costs incurred directly for treatment of chemically contaminated drinking water supplies and through lost revenues resulting from municipal residents’ exposure. This Comment argues Congress should expand municipal access to filing for bankruptcy under chapter 9 of the Bankruptcy Code to encourage local government efforts to clean up chemical contamination in drinking water supplies. It shows astronomical costs associated with widely spread chemical contamination. In particular, contamination caused by highly toxic forever chemicals is not covered by present litigation settlements paid by corporations or present municipal budgets. Additionally, chemical exposure leads many municipal residents to develop chronic illnesses that impact their ability to work and increases the need for public healthcare and welfare services. This, in turn, hurts the local economy. This Comment further demonstrates that, given the state of modern municipal debts, cleanup of chemical contamination is almost certain to cause significant fiscal distress for municipalities that want to facilitate cleanup efforts regardless of whether they can receive external funding to do so. Damages and chemical contamination worsen with each passing day chapter 9 bankruptcy is inaccessible. Therefore, Congress should expand access to chapter 9 bankruptcy to give municipalities the opportunity to act in the best interest of their residents. Primarily, Congress should reevaluate the explicit state authorization and insolvency requirements as together they present opportunities for governments, lenders, and potential creditors, to take advantage of fiscally distressed municipalities while failing to protect municipal autonomy. The courts should also revisit their interpretations of the insolvency requirement to create realistic evaluations of municipal financial standing. As the insolvency requirement is currently interpreted, it encourages, and at times requires, municipalities to incur significant additional debt or otherwise be barred from filing for bankruptcy. This requirement, in turn, imposes undue hardships on municipal residents who will be subject to increased taxes and reduced public services. These detriments are compounded in jurisdictions suffering chemical contamination. Revisions to chapter 9 could ultimately encourage the cleanup of highly toxic and dangerous chemicals to provide for the health and welfare of impacted municipal residents while also creating a sustainable financial plan for impacted municipalities.