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And the Legal Theory Behind It
Clayton Gillette, Director of the Marron Institute and Max E. Greenberg Professor of Contract Law at NYU School of Law, was featured in an article in The Nation titled, "Meet the Legal Theorists Behind the Takeover of Puerto Rico". The article delves into the implications of a paper by Gillette and David Skeel that was published in 2016 in The Yale Law Journal, under the title, "Governance Reform and the Judicial Role in Municipal Bankruptcy".
In the piece, the lawyers rigorously defend the legal theory that municipal governments ought to be treated like private corporations when they go bankrupt. To Skeel and Gillette, local governments and private corporations share many similarities. Both, they write, are "vehicles for providing goods and services." Skeel told me by phone that one of the key questions they explore in their work is, "To what extent is it appropriate to use the kinds of processes used for private entitites, when you're talking about a public entity?
While judges can reform private corporations, they don't have the power to adjust the governance of bankrupt cities and towns.
Gillette, who provided pro bono advice to Detroit's emergency manager, told me there is ample evidence to suggest that certain governmental reforms "enhance the fiscal stability" of cities. Gillette said cities might consider granting mayors broad veto powers; institue at-large, rather than district-based, representation on city councils; and require mulityear budgeting to constrict public officials' spending powers. But of course, these types of reforms are either highly controversial or would never be passed by elected officials.