Who should benefit from the billions of dollars in stimulus that federal grant spending creates when a government is broke—creditors or communities? The Puerto Rico bankruptcy demonstrated that neither bankruptcy courts nor government grant-making agencies really know what to do in that situation, and that the actions of these entities created moral hazards that benefited creditors post-Hurricane Maria. This Article argues that giving communities the benefit of economic stimulus created by federal spending makes sense in light of federal grant administration and bankruptcy law. Doing so meets bankruptcy law’s goal of ensuring the debtor has a fresh start and minimizing the need to seek bankruptcy protection in the future. While Congress can legislate changes to ensure that the situation in Puerto Rico never happens again, this Article also presents several prescriptions that bankruptcy judges and agencies can implement in the absence of Congressional action.
* Associate Professor of Law, Indiana University Maurer School of Law. For valuable feedback, I owe a debt of sincere gratitude to: Emmanuel Arnaud, Douglas Baird, Matt Bodie, Laura Coordes, Diane Lourdes Dick, Bridget Dooling, Jared Ellias, Andrew Hammond, Melissa Jacoby, Dillon Lappe, Matt Lawrence, Desirée LeClercq, Leandra Lederman, Vitor Martin-Dias, Michael Nicholson, Eloise Pa-sachoff, John Pottow, Brishen Rogers, and David Skeel. The author also thanks attendees at the ABA’s Program for Prospective Administrative Law Scholars workshop, the ABA’s Administrative Law Conference, and the Harvard-Wharton Insolvency and Restructuring Conference for helpful comments. The author also received helpful feedback at the following faculty workshops: Brooklyn Law School, Indiana University Maurer School of Law, Lincoln Memorial University Duncan School of Law, Syracuse University College of Law, University of Illinois at Chicago School of Law, University of Kentucky Rosenberg School of Law, University of Nebraska, University of St. Thomas School of Law, University of Toledo College of Law, and Wayne State University. The author served as Chair of the Official Unsecured Creditors’ Committee during part of Puerto Rico’s Title III proceedings under PROMESA and represented the Service Employees International Union (SEIU). Additionally, he represented the SEIU as amicus curiae in United States v. Vaello-Madero. All comments made in this article are made in his own personal capacity and should not be attributed to any institution with which he was affiliated with.
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