In discussing the fiscal calamity that the City of Portland's massive debt load seems likely to cause eventually, we have been referring to it in a shorthand way as a "municipal bankruptcy." Our thought has been that when the monthly payments on the city's debts become too great for it to pay -- and with huge pension obligations on top of too many bonds outstanding, that day will almost certainly come -- the city would do what Vallejo, California is doing, declare bankruptcy under the federal bankruptcy laws. There is a chapter of the bankruptcy code specifically designed for local governments -- Chapter 9 -- and we have surmised that the city will eventually wind up in a Chapter 9 proceeding.

Bankruptcy can be a good thing for a troubled debtor -- just ask the Pacific Northwest religious order of Jesuit priests, who this week invoked bankruptcy to dissuade priestly sex abuse victims from pursuing down to the last dollar their damage claims against the order. In a bankruptcy, the people who are owed money get paid something, but the payout is usually a day late and many dollars short. An honest debtor gets to walk away from part of what it owes, and quite often it gets to continue operations. Some or all of the creditors wind up grinding their teeth -- just ask the pilots of an airline that went bankrupt how they made out on the pensions they had earned before the bankruptcy.

Anyway, a legal-beagle reader out there has been pestering us for a little while now to stop talking about Portland declaring bankruptcy, because, he says, Oregon municipalities aren't allowed to invoke bankruptcy protection. The other day, he wrote us and said:

Last time I looked, Oregon cities were not eligible for Chapter 9. Bankruptcy law says that if state courts can't adjust the debts of cities, neither can federal courts. An Oregon Supreme Court case from the last big depression said state courts can't adjust city debts; it violates separation of powers.

But who knows what the current Supreme Court would say?

We have never considered the prospect of an insolvent debtor not being able to declare bankruptcy and rearrange its debts. Bankruptcy has always been explained to us as a necessary evil, because without it various creditors would be foreclosing and seizing assets left and right, making it impossible for the debtor to continue operating and ever get back on its feet. The ensuing chaos would be unfair to the creditors as a whole as well as to the debtor and its owners. There are no debtor's prisons in the United States, but without bankruptcy, it has been suggested, bad things can happen to everyone surrounding an insolvent borrower.

If our reader's right and Oregon cities can't go bankrupt, what will happen if Portland's obligations to pay pensions and bonds make it impossible to run basic services at even a minimal level? With the state's constitutional property tax limitations in place, the city can't raise property taxes above a certain level to keep everything going. Will it simply shut down current operations, and use all property tax collections to pay police retirements and debt service on bonds? Which of those creditors would have priority? And if people aren't getting municipal services, how long will they keep paying their property taxes?

It would be an interesting scenario, to be sure.

So, is the reader correct about this? To our eye, untrained in bankruptcy law and not all that expert on the Oregon Constitution, he may or may not be. The case to which he is probably referring is Enterprise v. State, a 1937 decision involving that picturesque city in the northeastern corner of Oregon. The 1933 Legislature had set up a system whereby a city in default on its debts had to submit to court appointment of an "administrator," who would have broad powers over the defaulting city's operations with the goal of getting the creditors paid off. The state's high court ruled that it would be unconstitutional to force a city's elected governing body to subject itself to that level of interference with its authority. The Supreme Court wrote:

While the administrator's duties are confined to management of the fiscal affairs of the city, his power is, nevertheless, great. He possesses the sole authority to sign its checks, warrants, etc. He possesses a veto power over its contracts. While he has no authority to discharge an elective official, he, nevertheless, has the power to fix the salary of such individual as well as authority to hire, discharge and fix the salaries of all other city employees....

It has been held too many times to require the citation of authority that the power of taxation is a legislative power -- not a function of the judiciary. Likewise, the power to fix the salaries of municipal officers, and to effect municipal contracts is entirely foreign to the judicial branch of our government. Yet this statute undertakes to clothe an officer of the courts with power to be subtracted from municipal officers and to install him in an office which may very truthfully be termed municipal dictator. By appeal from his rulings all of the quarrels of the council chamber concerning legislative and administrative affairs would be transferred to the courtroom. It would become the city hall....