FEELING INSECURE—A STATE VIEW OF WHETHER
INVESTORS IN MUNICIPAL GENERAL OBLIGATION
BONDS HAVE A MERE PROMISE TO PAY
OR A BINDING OBLIGATION
Randle B. Pollard†
ABSTRACT
The City of Detroit's filing for municipal bankruptcy in July,
2013, has added to a continuing controversy of whether general
obligation bondholders have a secured lien. The City of Detroit
claimed its general obligation bondholders did not have a fully
secured lien because the law of the state of Michigan did not
create a statutory lien. Without the creation of a lien by state law,
during the insolvency or bankruptcy of municipalities, general
obligation bondholders will potentially have a mere promise to pay
versus a binding obligation to pay, and therefore, will not have a
secured lien. Treating otherwise secured general obligation bonds
as unsecured will create more risk for investors and increase the
cost of borrowing for cities. This article discusses the treatment of
general obligation bonds in recent municipal bankruptcies;
identifies the states that create a binding obligation to pay general
obligation bondholders; describes problems of not treating general
obligation bonds as secured; and proposes that states create clear
laws that grant statutory liens for general obligation bondholders.

†

Randle B. Pollard is an Assistant Professor of Business Law and Taxation
at Indiana University, Kelley School of Business located in Indianapolis,
Indiana. Thanks to Professors Starla Williams and Phyllis C. Taite for their
thoughts and comments on earlier drafts. Additionally, thanks to my research
assistant Roya Porter.

19

_________________________________________________________________________________
This is the author's manuscript of the article published in final edited form as:
Pollard, R. B. (2015). Feeling Insecure-A State View of Whether Investors in Municipal General Obligation Bonds Have
a Mere Promise to Pay or a Binding Obligation. Widener Law Journal, 24(19), 15-39.
Available at SSRN: http://ssrn.com/abstract=2592727
Electronic copy available at: http://ssrn.com/abstract=2592727

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I. INTRODUCTION .......................................................................... 20 
II. OVERVIEW OF GENERAL OBLIGATION BONDS .......................... 22 
A. Definition ............................................................................ 22 
B. General Obligation Bonds vs. General Fund Securities .... 24 
1. Structure ........................................................................ 25 
2. Security ......................................................................... 25 
3. Debt Repayment............................................................ 25 
4. Public Role .................................................................... 26 
5. State Enforcement ......................................................... 26 
6. Bankruptcy Protection .................................................. 26 
III. MUNICIPAL BANKRUPTCIES AND GENERAL OBLIGATION
BONDS ...................................................................................... 26 
A. Detroit................................................................................. 26 
B. Other Recent Municipal Bankruptcies ............................... 32 
1. Vallejo ........................................................................... 32 
2. Jefferson County ........................................................... 33 
3. Stockton ........................................................................ 34 
4. Harrisburg ..................................................................... 34 
IV. AFTER DETROIT—PROMISE VERSES OBLIGATION .................. 35 
A. Are General Obligation Bonds Secured by Lien? .............. 35 
B. State by State Review of Statutory Liens ............................ 37 
V. EFFECT OF REQUIRING STATUTORY LIENS ON GENERAL
OBLIGATION BONDS.................................................................. 37 
A. State Reaction ..................................................................... 37 
B. Reaction by the Bond Market and Investors....................... 38 
VI. CONCLUSION ........................................................................... 40 
I. INTRODUCTION
The filing for municipal bankruptcy by the City of Detroit in
July, 2013, has added to the continuing controversy of whether
general obligation bondholders have a secured lien. The City of
Detroit claimed its general obligation bondholders did not have a
fully secured lien because the law of the state of Michigan did not
create a statutory lien.1 Without the creation of a lien by state law,
1

See infra Part III.A (detailing Detroit's claim).

Electronic copy available at: http://ssrn.com/abstract=2592727

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during the insolvency or bankruptcy of municipalities, general
obligation bondholders will have a promise to pay versus a binding
obligation to pay, and therefore, will not have a secured lien.2 The
City of Detroit's position—along with recent municipal
bankruptcies in Vallejo, California; Jefferson County, Alabama;
Stockton, California; and Harrisburg, Pennsylvania—has general
obligation bondholders receiving less than 100 percent of their
investments and deemed as unsecured creditors.3
These
bankruptcies raise an important issue: how secure are general
obligation pledges? General obligation bonds, like other municipal
bonds, are exempt from federal taxation on the interest earned on
their issuance.4 However, they differ from other types of
municipal bonds because they typically involve the issuing
government entity pledging its "full faith and credit"—its ability to
levy and collect taxes to secure and pay the debt service of the
bonds.5 Without the creation of a lien by state law, as the City of
Detroit claimed, during a municipality's financial distress or
bankruptcy, general obligation bondholders will have merely the
municipality's promise to pay, rather than its binding obligation to
pay.6 Consequently, general obligation bondholders may only
receive a percentage of their investment. Without a binding
obligation to pay, investors in general obligation bonds will
demand higher yields to mitigate their risk. Paying higher yields
increases the cost of borrowing for municipalities and may

2

Caitlin Devitt, When Chapter 9 and General Obligations Collide, THE
BOND BUYER, June 26, 2014, http://www.bondbuyer.com/news/regionalnews/
when-chapter-9-and-general-obligations-collide-1063845-1.html (describing the
dilemma of general obligation bondholders when they are treated as unsecured
creditors in a Chapter 9 municipal bankruptcy).
3
See Bondholders Losing Ground in City Bankruptcies, GOVERNING.COM
(Oct. 24, 2013), http://www.governing.com/news/headlines/gov-bondholderslosing-ground-in-muni-bankruptcies.html (noting that bondholders can receive
"as little as 50 cents on the dollar" and highlighting municipal bankruptcies in
Alabama, California, and Harrisburg, Pennsylvania).
4
See infra Part II.A for more information about municipal bonds and
general obligation bonds.
5
Id.
6
See id. (detailing Detroit's claim).

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jeopardize bond financing of essential public services and
infrastructure.
This Article examines the treatment of general obligation
bondholders during the bankruptcy of a municipality. Part II
defines general obligation bonds and distinguishes characteristics
of true general obligation bonds that are binding obligations to pay,
from general fund securities that are tantamount to mere promises
to pay the municipality's debt. Part III reviews the Detroit
bankruptcy and other recent municipal bankruptcies in the context
of describing the treatment of holders of general obligation bonds.
Part IV contains a state by state review of a state's statutory lien
provisions or relevant state constitutional protections that create
secured liens for general obligation bondholders. Part V explores
the reaction of the municipal bond market and municipal bond
issuers to the treatment of general obligation bondholders by
municipalities that recently filed bankruptcy. Lastly, this Article
concludes with a discussion of the challenges of general obligation
bondholders in future municipal bankruptcies and proposes that
states create clear laws that grant statutory liens for general
obligation bondholders.
II. OVERVIEW OF GENERAL OBLIGATION BONDS
A. Definition
Municipal bonds are debt obligations issued by a state, local
government, agency, or appointed government entity granted the
authority to issue debt, to finance public purpose projects.7 Public
purpose projects include roads, airports, hospitals, affordable
housing, and public purpose programs.8 The interest earned on
municipal bonds is generally exempt from federal taxation.9

7

JOEL A MINTZ, RONALD H. ROSENBEG & LARRY A. BAKKEN,
FUNDAMENTALS OF MUNICIPAL FINANCE 1 (2010); JUDY WESALO TEMEL, THE
FUNDAMENTALS OF MUNICIPAL BONDS, xv-xvi (5th ed. 2001).
8
TEMEL, supra note 7, at xv.
9
28 U.S.C. § 103(a) (2012). However, certain taxpayers may be subject to
alternative minimum tax based on their taxable income. 26 U.S.C. §§ 55-59
(2012).

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Nonetheless, municipal bonds are not tax-exempt if the proceeds
from the issuance are used for private, non-governmental uses or
are used by the issuer to invest in higher yielding securities.10
Thus state and local governments can borrow money at lower
interest rates because exempting interest on state and local bonds
increases the after-tax yield on the bonds,11 allowing state and
local bond issuers to pay lower interest rates to bondholders.12
There are several types of municipal bonds; however, the two
most common are revenue and general obligation bonds.13 These
types of bonds are distinguishable by how the repayment of
principal and interest of the bonds is secured by the issuer.14
Revenue bonds are bonds secured by a specific revenue stream
aside from ad valorem taxes and do not involve the issuer pledging
its "full faith and credit" power.15 General obligations are payable
and secured by the general funds of the government entity issuer.16
10

28 U.S.C. § 103(b)(1)-(2). Private activity bonds are bonds where more
than 10% of the bond proceeds are used by a non-governmental person in a trade
or business and either more than 10% of the payment on the debt service is
derived from a private trade or business or more than 10% of the security for the
payment of the bonds is private property. Arbitrage bonds are bonds where the
proceeds of the issuance are used by the issuer to invest in higher yielding
bonds.
11
See generally TEMEL, supra note 7, at 27, 133 (discussing the advantages
of tax exemption, which allows investors to accept lower yields); see also
ROBERT DOTY, BLOOMBERG VISUAL GUIDE TO MUNICIPAL BONDS, Ch. 1
(Bloomberg Press 2012), available at http://my.safaribooksonline.com/book/
personal-investing/9781118152553.
12
See generally TEMEL, supra note 7, at 27, 133; see also DOTY, supra
note 11, at Ch. 9 (providing an example of how state and local governments
issue tax exempt bonds at lower yields than taxable securities).
13
TEMEL, supra note 7, at 33.
14
Id.
15
See id. at 58-59 (discussing ad valorem taxes as property taxes and the
six types of revenue bonds: utilities, health care, higher education, housing,
transportation, and industrial development); see also Glossary of Municipal
Securities Terms: Revenue Bond, MSRB.ORG, http://www.msrb.org/Glossary/
Definition/revenue-bond.aspx (last accessed Jan. 20, 2015).
16
TEMEL, supra note 7, at 33; Glossary of Municipal Securities Terms:
General Obligation Bond or GO Bond, MSRB.ORG, http://www.msrb.org/
Glossary/Definition/general-obligation-bond-or-GO-bond.aspx (last accessed
Jan. 20, 2015).

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Most general obligation bonds entail a pledge of the issuer's "full
faith and credit" for the payment of the principal and interest on
the bonds.17 A pledge of an issuer's full faith and credit requires
the issuer to seek repayment of the bonds from all sources of
revenue that the state and local government entity is entitled to
receive.18 This pledge of the issuer's full faith and credit, however,
may be an unlimited or limited pledge.19 Unlimited tax general
obligation bonds, known as UTGO bonds, require the issuer to
levy and collect ad valorem taxes to pay the debt service.20
Limited tax general obligation bonds, known as LTGO bonds,
limit the obligation of the issuer—generally through the bond
terms, state statute, or state constitution—in order to levy taxes and
pay the bond.21 Both LTGO and UTGO bonds are generally
considered safe and secure investments by investors.22
B. General Obligation Bonds vs. General Fund Securities
What type of municipal debt is a bond, and further, what type
of bond is considered a general obligation bond? The question is
relevant to understanding the potential treatment of bondholders
and investors in general fund securities during a municipal
bankruptcy. It is easy to confuse general obligation bonds with
general fund securities since both use the word "general" in their
titles,23 and both involve debt issued by a state or local government
entity.24 Nonetheless, that is where the similarities end. To

17

TEMEL, supra note 7, at 33.
Id. at 55-56.
19
Id. (discussing the distinction between "full faith and credit" and "faith
and credit").
20
Id. at 56 (unlimited refers to the tax rate or the amount); DOTY, supra
note 11, at Ch. 3.
21
TEMEL, supra note 7, at 56.
22
Robert Doty, The Diversity of Municipal Bonds and What You Need to
Know About Risks, AAII JOURNAL (May 2012), http://www.aaii.com/journal/
article/the-diversity-of-municipal-bonds-and-what-you-need-to-knowaboutrisks?adv=yes (referring to Municipal Market Advisor data that states the recent
default rate of traditional general obligation bonds is only 0.01%).
23
Id.
24
Id.
18

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FEELING INSECURE

25

illustrate the difference, the key characteristics are grouped as
followed:25
1. Structure
Municipal bonds are typically structured as bonds—a debt of
state and local governments.26 General securities typically are
participations in financing such as lease obligations and certificates
of participation.27
2. Security
General obligation bonds are secured by a pledge of taxes;
levy and collection of ad valorem taxes or state legislature
appropriations.28 General securities are simply payable from a
state or local government's general fund.29 The general fund of a
state local government is an unrestricted fund used to pay certain
obligations.30
3. Debt Repayment
Debt repayment on general obligation bonds is made by the
issuer levying and collecting taxes to pay the debt service, in
accordance with the issuer's pledge to do so.31 For general
securities, the issuer appropriates money from general fund to
make payments on the debt.32

25

Id.; see generally, DOTY, supra note 11, at Ch. 4 (comparing and
contrasting the differences between general obligation bonds and general
obligation securities).
26
Doty, supra note 22.
27
Id.
28
Id.
29
Id.
30
DOTY, supra note 11, at 44.
31
Doty, supra note 22.
32
Id.

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4. Public Role
General obligation bonds require voter approval, whereas
general securities do not require public approval.33
5. State Enforcement
The payment of general obligation bonds is enforceable by tax
levy.34 State courts can enforce the issuers' obligations to raise,
levy, and collect obligated taxes through a writ of mandamus or
other pleading.35 State law enforcement for general securities is
limited to specific terms of agreement to pay and appropriate
funds.36
6. Bankruptcy Protection
The treatment of general obligation bondholders depends on
whether the state grants a statutory lien or state constitutional
protection.37 General security holders have no special creditor
status and are treated as unsecured creditors.38
III. MUNICIPAL BANKRUPTCIES AND GENERAL OBLIGATION BONDS
A. Detroit
For several years the City of Detroit ( the "City" or "Detroit")
dealt with a declining population, a high unemployment rate, and a
shrinking tax base.39 In May 2013, Detroit "deferred approximately

33

Id.
Id.
35
DOTY, supra note 11, at 46.
36
Doty, supra note 22.
37
Id.
38
Id.
39
Yu Peng Lin, The Fall of Detroit: A Financial Economist's Point of
View, 6 INT'L J. ECON. & FIN. 43, 43 (2014) (providing an economic history of
Detroit that resulted in its current bankruptcy); In re City of Detroit, Mich. (In re
Detroit), 504 B.R. 97, 119 (Bankr. E.D. Mich. 2013). In ruling on Detroit's
ability to file Chapter 9 Bankruptcy under Michigan law, U.S. Bankruptcy Judge
Steven Rhodes reviewed "The Causes and Consequences of the City's Financial
Distress." Id.
34

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FEELING INSECURE

27

$54 million in pension contributions" and planned to defer another
$50 million by the end of June.40 On June 13, 2013, Kevyn Orr,
the City's state appointed emergency manager, met with
approximately 150 of the City's major creditors, including
bondholders and union representatives of City employees and
retirees, to propose a restructuring plan of debt estimated at over
$18 billion.41 At the meeting Mr. Orr presented a 134-page
restructuring proposal to assist the City in meeting its debt
obligations and avoid bankruptcy.42 The proposal would pay
secured creditors based on the value of the collateral securing the
debt, the terms to be negotiated later.43 It would also pay
unsecured creditors, including underfunded pension liabilities, with
a share in the proceeds of a new $10 billion bond issuance based
on each creditor's pro rata share of the total debt.44 After several
unsuccessful meetings with creditors45 and with the approval of
Michigan Governor Rick Snyder, Kevyn Orr filed a petition for
Chapter 9 bankruptcy on behalf of the City on July 18, 2013.46
40

CITY OF DETROIT, PROPOSAL FOR CREDITORS, EMERGENCY MANAGER
REPORTS 8 (June 14, 2013), available at http://www.detroitmi.gov/Portals
/0/docs/em/Reports/City%20of%20Detroit%20Proposal%20for%20Creditors1.p
df.
41
Sarah Cwiek & Mark Brush, Orr's Restructuring Plan Released,
Historic Meeting with Detroit's Creditors is Underway, MICHIGANRADIO.ORG
(June 14, 2013), http://michiganradio.org/post/orrs-restructuring-plan-releasedhistoric-meeting-detroits-creditors-underway; 'We're Tapped Out': Detroit
Emergency Manager Proposes Plan To Creditors, CBS DETROIT (June 14,
2013, 4:01 PM), http://detroit.cbslocal.com/2013/06/14/detroit-emergency-man
ager-proposes-plan-to-creditors/.
42
CITY OF DETROIT, supra note 40.
43
Id. at 101-06.
44
Id. at 106-09; Mike Cherney, Pension Bonds Raise Red Flags on Munis,
WALL ST. J. (July 24, 2013, 4:51 PM), http://blogs.wsj.com/moneybeat
/2013/07/24/pension-bonds-raise-red-flags-on-munis/.
45
See Bankruptcy Petition at 15, In re Detroit, 504 B.R. 97 (July 18, 2013)
(No. 13-53846) (written approval of bankruptcy filing from Michigan Governor,
Rick Snyder, noting the failure to reach a restructuring agreement with creditors
"[d]espite Mr. Orr's best efforts"), available at http://www.freep.com/assets/
freep/pdf/C4208687718.pdf.
46
Supra note 45; Detroit Bankruptcy Time Line, DETROIT FREE PRESS
(July 14, 2014, 2:36 PM), http://www.freep.com/article/20140713/NEWS01
/307130100.

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In its petition, Detroit claimed to have over 100,000 creditors,
and estimated unsecured debt of $11.9 billion and secured debt of
$6.4 billion, totaling over $18 billion.47 The $18 billion of debt is
comprised of $5.7 billion of pension benefits for public employee
retirees, $3.5 billion in unfunded pension liabilities, approximately
$2 billion in certificate of participation (COP)48 financing for
pension liability, $1.01 billion of general fund obligations, $6.4
billion of obligations secured by special revenue or assets, and
$300 million in other debt.49 The City included $469.1 million
general obligation bonds and $5.7 billion of pension benefit
liability as unsecured debt.50 The $18 billion of debt denotes
Detroit's bankruptcy as the largest municipal bankruptcy in U.S.
history.51
The filing of the petition for bankruptcy did not occur without
controversy, and many creditors filed objections on several
grounds.52 On December 3, 2013, U.S. Bankruptcy Judge Steven
Rhodes ruled that Detroit was eligible for Chapter 9 bankruptcy.53
47

In re Detroit 504 B.R. at 113.
Id. at 113-14. A certificate of participation (COP) is an arrangement
among investors, by which they purchase certificates entitling them to a share of
incoming revenue, typically revenue generated by lease payments. JUDY
WESALO TEMEL, THE BOND MKT. ASS'N, THE FUNDAMENTALS OF MUNICIPAL
BONDS 57 (5th ed. 2001).
49
CITY OF DETROIT, supra note 40, at 23, 25-26.
50
Id. at 23-26. (detailing that as of 2011, pension benefits to the Health and
Life Insurance Benefit Plan and the Supplemental Death Benefit Plan for
retirees totaled $5.7 billion; unfunded pension obligations $3.5 billion; general
obligation bonds $651 million; COP related to pensions $1.43 billion; swap
contract liabilities related to the COPs $346.6 million; and other liabilities $300
million).
51
In re Detroit, 504 B.R. at 178; Lin, supra note 39.
52
In re Detroit, 504 B.R. at 110. A full detail of the objections and motions
against the bankruptcy petition is beyond the scope of this article. For such
included state constitutional arguments regarding Detroit's ability to file, see
Flowers v. Snyder, No. 13-729-CZ (Mich. Cir. Ct. filed July 3, 2013) and
Webster v. Snyder, No. 13-734-CZ (Mich. Cir. Ct. filed July 3, 2013) (both
lawsuits tried to enjoin the City from filing Chapter 9 bankruptcy and impairing
pension claims). For a similar challenge to Detroit's filing for bankruptcy see
General Retirement System of the City of Detroit v. Orr, No. 13-768-CZ (Mich.
Cir. Ct. filed July 17, 2013).
53
In re Detroit, 504 B.R. at 190.
48

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Judge Rhodes also ruled that pension claims are unsecured debt,
potentially giving the claims of general obligation bondholders
priority over pension fund claims.54 Shortly after Judge Rhodes'
ruling, on February 21, 2014, the City filed its reorganization plan
or "Plan of Adjustment" (the "Plan") to pay its creditors pursuant
to the bankruptcy filing.55 A major element of the Plan was to treat
secured general obligation bonds as unsecured.56
With the unsecured debt classification, the City would pay a
small percentage of this outstanding debt, potentially twenty cents
per dollar of the debt.57 By declaring the UTGO bonds as
unsecured in its Plan,58 the City could use revenues currently
pledged to these bonds to secured newly issued water and sewer

54

Id. at 149-51 ("[C]hapter 9 permits the State of Michigan to authorize a
city to file a petition for chapter 9 relief without explicitly providing for the
protection of accrued pension benefits."); see also Daniel Fisher, Detroit
Bankruptcy Ruling Good News For Muni Bonds, Insurers, FORBES (Dec. 4,
2013, 3:20 PM), http://www.forbes.com/sites/danielfisher/2013/12/04/detroitbankruptcy-ruling-good-news-for-muni-bonds-insurers/. For a discussion about
whether pension fund claims should have greater priority than municipal bonds,
see Adam Santeusanio, Developments in Banking and Financial Law: 2014: II.
In re Detroit: Consequences of Detroit's Bankruptcy for Pensioners, 33 REV.
BANKING & FIN. L. 430, 433-34 (Spring 2014) (discussing potential strategies
for Detroit pensioners and the impact of Judge Rhode's ruling on pensioners in
other municipalities). For a discussion about Judge Rhodes ruling's impact on
Detroit pensions and reforms to municipal financing and debt to prevent future
municipal bankruptcies see Christine Sgarlata Chung, Zombieland / The Detroit
Bankruptcy: Why Debts Associated with Pensions, Benefits, and Municipal
Securities Never Die . . . and How They are Killing Cities Like Detroit, 41
FORDHAM URB. L.J. 771, 817, 842 (Mar. 2014).
55
Plan for the Adjustment of Debts of the City of Detroit, In re Detroit,
504 B.R. 97 (Feb. 21, 2014) [hereinafter Detroit Plan], available at
http://www.freep.com/assets/freep/pdf/C4218951221.PDF.
56
Id. at 30-31, 97. Note however, that the Plan did not address the City's
shrinking tax base with regard to general obligation bonds.
57
Anne VanderMey & Nicolas Rapp, Detroit Proposes a Lose-Lose
Bankruptcy Plan, FORTUNE (Feb. 22, 2014, 3:36 AM), http://fortune.com
/2014/02/22/detroit-proposes-a-lose-lose-bankruptcy-plan/.
58
Detroit Plan, supra note 55, at 28.

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bonds, the proceeds of which would be used to pay all unsecured
creditors.59
The outstanding general obligation bond debt is comprised of
$469.1 million of unlimited tax general obligation bonds and
$540.3 million are limited tax general obligation bonds.60 In the
defined terms section of the Plan, the Plan treats an "Allowed"61
UTGO bonds as follows:
[E]ach Holder of an Allowed Unlimited Tax General
Obligation Bond Claim, in full satisfaction of such
Allowed Claim, shall receive its Pro Rata share of
Plan . . . . The Plan UTGO Notes shall contain such other
terms as will result in each Holder of an Allowed
Unlimited Tax General Obligation Bond Claim receiving
a payment stream the present value of which is equal to
approximately 20% of such Holder's Allowed Unlimited
Tax General Obligation Bond Claim as of the Effective
Date.62
The Plan treats LTGO bonds and UTGO bonds the same as
unsecured debt and offers holders of both 20 percent recovery of
their outstanding claims.63 In line with its unsecured treatment of
the UTGO bonds, on October 1, 2013, the City failed to pay a $9.4
million interest payment to bondholders.64 The missed interest
payment put the UTGO bonds in default. If UTGO bondholders
failed to receive their quarterly interest payments, the issuance is in
59

Matt Wirz & Emily Glazer, Detroit Bankruptcy: Bond Insurers Made
Last Ditch Counterproposal to No Avail, WALL ST. J. (June 19, 2013, 6:20 PM)
http://blogs.wsj.com/moneybeat/2013/07/19/detroit-bankruptcy-bond-insurersmade-last-ditch-counterproposal-to-no-avail/.
60
CITY OF DETROIT, supra note 40, at 26.
61
Detroit Plan, supra note 55, at 2 ("Allowed" is defined as "a Claim,
proof of which has been timely Filed.").
62
Id. at 28.
63
Michael Ide, The Upside to Detroit Muni Bonds, VALUEWALK (Mar. 11,
2014), http://www.valuewalk.com/2014/03/upside-detroit-muni-bonds/.
64
Karen Pierog & Tom Hals, Detroit Bankruptcy Bond Fight a Watershed
for Municipal Market, REUTERS (Feb. 17, 2014), http://www.reuters.com/article/
2014/02/17/us-usa-detroit-bankruptcy-bonds-idUSBREA1G0OJ20140217.

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default, requiring insurers of the bond issuances to make the
interest payments. Nationally, only 2 percent of $5 trillion general
obligation bonds issued have ever defaulted.65 After Detroit
defaulted on the UTGO bonds, bond insurers National Public
Finance Guarantee Corp., the public finance subsidiary of MBIA
Inc., and Assured Guaranty Municipal Corp. together filed a
lawsuit, and Ambac Assurance Corp. also filed a separate suit.66
Both lawsuits claimed that the City violated Michigan law by using
property taxes pledged to secure the bonds for its operating
expenses.67 The bond insurers sought summary judgment from
Judge Rhodes to force the City to (1) set aside property tax revenue
to make the bond payments and, (2) restrict the City from using tax
revenue earmarked for the payment of the bonds for future
financing.68 Detroit responded to the lawsuits by claiming its
pledge to repay the bonds was a promise under state law, and
likened it to a " 'promise,' as in 'I pledge allegiance to the flag.' "69
For several weeks Judge Rhodes considered the issue of
treating UTGO bonds as unsecured debt.70 In the meantime, the
City and the bond insurers were able to mediate a settlement before
Judge Rhodes ruled on the issue.71 The parties agreed the UTGO
bondholders' claim would be secured and paid in the amount of
$388 million, of which $287.5 million (approximately 74 percent)

65

Arthur R. O'Keefe, Muni Bond Defaults, Bankruptcies and Bondholder
Protections, BNY MELLON (June 30, 2013), http://www.bnymellon
wealthmanagement.com/our-views/perspectives/muni-bond-defaults.html.
66
Complaint for Declaratory Judgment & Order, In re Detroit, 504 B.R. 97
(Nov. 13, 2013) (No. 13-53846) 2013 WL 6331931 [hereinafter Joint
Compliant]; Complaint of Ambac Assurance Corp. for Declaratory Judgment &
Order In re Detroit, 504 B.R. 97 (Nov. 8. 2014) (No. 13-53846).
67
Joint Compliant, supra note 66, ¶6.
68
See id. at 26-28; see also Pierog & Hals, supra note 64.
69
Pierog & Hals, supra note 64.
70
Detroit Bankruptcy Time Line, supra note 46.
71
See Nathan Bomey, Detroit Bankruptcy Bond Deal Frees up $56M for
Pensioners, Orr Says, DETROIT FREE PRESS (Apr. 9, 2014), http://www.freep
.com/article/20140409/NEWS01/304090081/Detroit-bondholders-bankruptcysettlement-Kevyn-Orr-Gerald-Rosen.

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would be treated as secured debt.72 The City's Plan and its
amended disclosure statement were further amended to reflect the
mediated agreement.73 The underlying legal arguments of the
parties were not addressed in the mediation.74
B. Other Recent Municipal Bankruptcies
Prior to Detroit, recent municipal bankruptcies have had
similar issues regarding the priority rights of municipal
bondholders.75 Municipal bondholders in bankruptcies in Vallejo
and Stockton, California; Jefferson County, Alabama; and
Harrisburg, Pennsylvania were all treated as having unsecured debt
in bankruptcy restructuring plans.76 However, only the City of
Harrisburg, whose bankruptcy petition was dismissed and
restructured its debt outside of bankruptcy, involved UTGO
bonds.77 In the remaining bankruptcies, bondholders held general
fund securities.78 General fund securities, unlike LTGO and
UTGO bonds, do not involve a pledge of specific tax revenue and
are treated as unsecured creditors in bankruptcy.79
1. Vallejo
Since the early 2000s, the City of Vallejo had struggled to
maintain a balanced budget in part due to lavish salaries and
72

Third Amended Disclosure Statement with Respect to Third Amended
Plan for the Adjustment of Debts of the City of Detroit at 32, 98, In re Detroit,
504 B.R. 97 (filed April 25, 2014) [hereinafter Third Amended Disclosure].
73
Id at 61, 98; see also Chad Halcom, Detroit Agrees to Pay Bondholders
74% on $388M Claim in Bankruptcy, CRAIN'S DETROIT BUSINESS (Apr. 9,
2014), http://www.crainsdetroit.com/article/20140409/news/140409839/detroitagrees-to-pay-bondholders-74-on-388m-claim-in-bankruptcy.
74
Third Amended Disclosure, supra note 72, at i-vii; see also In re Detroit,
504 B.R. at 108-10.
75
See Bondholders Losing Ground in City Bankruptcies, supra note 3
(noting that bondholders can receive "as little as 50 cents on the dollar" and
highlighting municipal bankruptcies in Alabama, California, and Harrisburg,
Pennsylvania).
76
Id.
77
See infra notes 97-100 and accompanying text.
78
See infra notes 81-100 and accompanying text.
79
See supra notes 20-38 and accompanying text.

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FEELING INSECURE

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pension benefits paid to police and firefighters, which led to a $16
million shortfall.80 The City spent 74 percent of its $80 million
general fund budget on public safety employee salaries and
benefits.81 The City filed bankruptcy on May 23, 2008.82 In its
bankruptcy restructuring plan, the City defaulted on general fund
lease securities and holders of these securities received 25 percent
of their investment.83
2. Jefferson County
Jefferson County, Alabama, the county for which the City of
Birmingham is the county seat, filed for bankruptcy on November
9, 2011.84 Jefferson County's $4.2 billion in debt made it the
largest municipal bankruptcy prior to Detroit's bankruptcy.85 The
majority of the debt, $3.14 billion, was for sewer revenue bonds
and included general obligation bonds.86 In April, 2012, the
County defaulted on the general obligation bonds,87 but unlike the
general obligation bonds in the Detroit bankruptcy, these bonds
were not UTGO bonds but constituted general obligation
80

Carolyn Jones, Vallejo Votes to Declare Chapter 9 Bankruptcy, SAN
FRANCISCO CHRONICLE (May 7, 2008), http://www.sfgate.com/bayarea
/article/Vallejo-votes-to-declare-Chapter-9-bankruptcy-3285168.php; see also
Steven Greenhut, Vallejo's Painful Lessons in Municipal Bankruptcy, WALL
ST. J. (Mar. 26, 2010), http://online.wsj.com/articles/SB1000142405274870
3625304575115551578762006.
81
Jones, supra note 80.
82
City of Vallejo, Cal., Voluntary Petition for Bankruptcy, In re City of
Vallejo, 408 B.R. 280 (Bankr. E.D. Cal. 2009).
83
CITY OF VALLEJO BANKRUPTCY WORKOUT PLAN at B-9, I-5 (Dec. 22,
2009); Doty, supra note 22.
84
Jefferson County, Ala., Voluntary Petition for Bankruptcy, In re
Jefferson County, Ala., 484 B.R. 427 (Nov. 9, 2011).
85
See Martin Z. Braun, Jefferson County's Bankruptcy Left Few Winners,
BLOOMBERG (Nov. 23, 2013), http://www.bloomberg.com/news/print/2013-1122/jefferson-county-s-bankruptcy-left-few-winners-as-debt-forgiven.html.
86
MICHAEL MARZ & ANGELA KUKODA, FIRSTSOUTHWEST (WHITE PAPER),
RECENT BANKRUPTCIES AND DEFAULTS RAISE CONCERNS OVER GENERAL
OBLIGATION BONDS 1 (June 2012), available at http://www.munibondsfor
america.org/cms/wp-content/uploads/2012/11/First-SW-White-Paper-MuniBankruptcies-and-GO-Bonds-June-2012.pdf.
87
Id.

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warrants.88 The warrants were payable out of the County's general
fund, and there was "no specific lien on an asset or tax revenue
stream."89
3. Stockton
In 2012, the City of Stockton owed $700 million to over fifty
creditors due to high pension retiree costs, a failed downtown
revitalization project, and reduced property tax revenue because of
a real estate downturn.90 The City filed bankruptcy on June 28,
2012.91 Holders of general fund securities received 45 percent of
their investment in the bankruptcy restructuring.92 The largest
creditor was Assured Guaranty, the bond insurer of the general
fund securities.93
4. Harrisburg
In 2004, the City of Harrisburg issued a series of UTGO bonds
to retrofit a trash incinerator that had been closed by federal
environmental regulators.94 By the end of 2006, the renovation
had failed, and the facility was losing approximately $1 million a

88

Id.
Id.
90
Bobby White, Stockton Files for Bankruptcy Protection, WALL ST. J.
(June 29, 2012), http://online.wsj.com/news/articles/SB10001424052702304
058404577495412282335228; see also Scott C. Pryor, Fairness and Risk in
Stockton: Pensions, Bonds, and Taxes—When Doing Nothing is Doing Well, at
6-8 (July 23, 2013) (unpublished manuscript), available at http://papers.
ssrn.com/sol3/papers.cfm?abstract_id=2297478.
91
In re City of Stockton, Cal. (In re Stockton), 478 B.R. 8, 14 (Bankr. E.D.
Cal. 2012).
92
Bondholders Losing Ground in City Bankruptcies, supra note 3.
93
Id.
94
See generally John Buntin, Harrisburg's Failed Infrastructure Project,
GOVERNING.COM (Nov. 2010), http://www.governing.com/topics/transportationinfrastructure/Harrisburgs-failed-infrastructure-project.html (discussing how in
2004 Harrisburg issued $120 million in new debt in order to retrofit its
incinerator facility for environmental purposes, rather than choosing to sell the
incinerator and take a loss on a facility for which the city still owed $104
million).
89

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month.95 The City had over $280 million in outstanding UTGO
bonds, and by December of 2010, the City had failed to pay debt
service on the bonds.96 The City petitioned the state for a
designation of "financial distress" and subsequently filed Chapter 9
bankruptcy on October 8, 2011.97 The City failed to make a $5.3
million debt service payment on the UTGO bonds on March 15,
2012, and the bond insurer Assured sued.98 The City's bankruptcy
petition was dismissed by the federal bankruptcy court.99 The City
restructured its debt, which led UTGO bondholders to take a
"haircut" of approximately 40 percent.100
IV. AFTER DETROIT—PROMISE VERSES OBLIGATION
A. Are General Obligation Bonds Secured by Lien?
The mediated settlement between the City of Detroit and bond
insurers has not resolved the issue of whether Michigan law creates
a pledge of the full faith and credit of municipality issuing UTGO
bonds and not merely a promise to pay. Further, the lack of a
ruling on Michigan law leaves open the pledge or promise issue
95

Id.
Cate Long, A Harrisburg Scorecard, REUTERS (Oct 14, 2011),
http://blogs.reuters.com/muniland/2011/10/14/a-harrisburg-scorecard/;
Romy
Varghese, Assured Guaranty, TD Bank Slap Harrisburg With Suit, WALL ST. J.,
Sept 14, 2010, at C4 (describing the lawsuit against Harrisburg initiated by
Assured Guaranty, the bond insurer).
97
In re City of Harrisburg (In re Harrisburg), 465 B.R. 744, 749-50, 752
(Bankr. M.D. Pa. 2011); see Juliet M. Moringiello, Goals and Governance in
Municipal Bankruptcy, 71 WASH. & LEE. L. REV. 403, 474 (2014) (discussing
the events leading up to Harrisburg's filing for bankruptcy).
98
MARZ & KUKODA, supra note 86, at 3; Nick Malawskey, Harrisburg
Incinerator Contractors Haven't Been Paid, PENNLIVE (July 20, 2012, 5:48
AM),
http://www.pennlive.com/midstate/index.ssf/2012/07/harrisburg_inci
nerator_contrac.html.
99
Mary Walsh Williams & Jon Hurdle, Harrisburg Sees Path to
Restructuring Debts Without Bankruptcy Filing, N.Y. TIMES, July 25, 2013, at
A12.
100
See generally Bondholders Losing Ground in City Bankruptcies, supra
note 3 (explaining that in bankruptcy trials bondholders could recover as little as
50 cents on the dollar for defaulted municipal bonds in cities such as
Harrisburg).
96

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unresolved. Regardless of the interpretation of Michigan law, the
City of Detroit was still able to force bond issuers to negotiate
concessions on the debt owed to UTGO bondholders by treating
UTGO bonds as unsecured debt.101 Will UTGO bondholders ever
feel really secure when buying debt of economically distressed
cities, especially when state law regarding the establishment of a
lien is unclear?102
Notwithstanding the negotiating techniques of an
economically distressed city during a municipal bankruptcy,
bondholders must determine if state law, either implied or
expressly, created a statutory lien, or if a lien was created in the
enacting legislation that authorized the bond issuance, or lastly if
the state's constitution created a lien.103 Without such assurance,
investors will ask for higher yields on the investments to counter
the increased risk.104 James E. Spiotto, a bankruptcy attorney with
Chapman and Cutler LLP and coauthor of a book entitled
Municipalities in Distress?,105 stated that "whether generalobligation bonds or other types of muni debt are protected depends
on the language of the state law."106
101

See Steven Malanga, Detroit's Message to Investors: There Will be
Blood, CITY JOURNAL (Spring 2014), http://www.city-journal.org/2014/24
_2_snd-detroit-bankruptcy.html ("Orr used the unprecedented threat of treating
general obligation bonds like unsecured debt . . . which prompted the backers of
those bonds to agree to significant concessions . . . .").
102
Coming to a reasonable conclusion, this author answers in the negative.
Id. ("[G]eneral-obligation municipal bonds will never quite feel as secure as they
once were . . . .").
103
See PETER HAYES & JAMES SCHWARTZ, BLACKROCK INC., DISTRESS IN
DETROIT: A BLACKROCK ANALYSIS 3 (2013) ("[A lien] effectively provides GO
bondholders a priority lien on revenues for the full and timely payment of debt
service in cases of local government distress, including bankruptcy."), available
at https://www.blackrock.com/cash/literature/whitepaper/distress-in-detroit-ablackrock-analysis.pdf.
104
MARZ & KUKODA, supra note 86, at 7.
105
JAMES E. SPIOTTO, ANN E. ACKER & LAURA E. APPLEBY,
MUNICIPALITIES IN DISTRESS? HOW STATES AND INVESTORS DEAL WITH LOCAL
GOVERNMENT FINANCIAL EMERGENCIES (1st ed. 2012).
106
Kelley Nolan, On 'General Obligation' Munis, Investors Advise
Caution, WALL. ST. J. (May 17, 2012) (featuring Mr. Spiotto's response when
asked about the protection afforded to holders of general obligation bonds

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B. State by State Review of Statutory Liens
Determining whether an issuer of general obligation bonds has
a binding obligation to repay the debt service on the bonds would
appear to be simply a matter of a reviewing state statute. However,
only
five
states—California,107
Colorado,108
Florida,109
Louisiana,110 and Rhode Island111—have state laws that expressly
grant general obligation bondholders a statutory lien with a binding
obligation. A statutory lien grants the bondholders of UTGO
bonds a first priority to ad valorem taxes and other tax revenues.112
Analysts of Moody's Investor Service are currently doing a fiftystate analysis of state government general obligation pledges.113
Their analysis also distinguishes states with UTGOs and
LTGOs.114 In the attached Appendix A, a chart of all fifty states
provides how each state treats a general obligation bond and
whether it is a secured lien or not.
V. EFFECT OF REQUIRING STATUTORY LIENS ON GENERAL
OBLIGATION BONDS
A. State Reaction
Even before the Detroit bankruptcy, the rights of municipal
bondholders in a municipal financial crisis were put into doubt.115
For instance, in 2010 the City of Central Falls, Rhode Island,
declared insolvency due to $80 million in unfunded pension
liabilities that far exceeded the City's annual budget of $17

during bankruptcy), available at http://online.wsj.com/news/articles/SB1000
1424052702303360504577410230458546046.
107
CAL. GOV'T CODE § 8878.25 (West 2014).
108
COLO. REV. STAT. ANN. § 11-57-208 (West 2014).
109
FLA. STAT. § 132.43 (West 2014).
110
LA. REV. STAT. ANN. § 39:1402 (2014).
111
R.I. GEN. LAWS ANN. § 45-12-1 (West 2014).
112
MARZ & KUKODA, supra note 86, at 1.
113
See MOODY'S INVESTORS SERVICES, MUNICIPAL BANKRUPTCY: UPDATE
AND INSIGHTS – GENERAL OBLIGATION SPOTLIGHT (Dec. 5, 2013; Jan. 9, 2014;
Feb. 6, 2014; Mar. 7, 2014; Apr. 4, 2014).
114
Id. at 6.
115
See supra Part III.B.

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million.116 Central Falls filed Chapter 9 bankruptcy on August 1,
2011.117 Before the bankruptcy was completed, the Rhode Island
state legislature hastily passed legislation to protect municipal
bondholders by providing them with a statutory lien that gave them
preference over all other creditors and guaranteeing their
repayment from ad valorem taxes and general municipal revenues
in the event of bankruptcy.118 This legislation was enacted to
protect Rhode Island municipalities' ability to issue debt to finance
projects and to maintain low borrowing costs.119
Municipalities have an interest in maintaining low borrowing
rates and in state laws that strengthen and clarify the rights of
bondholders in a bankruptcy—statutes like that of California,
Colorado, Florida, Louisiana, and Rhode Island—which help foster
low borrowing rates.120 The Detroit bankruptcy filing and the
City's challenging its pledge of full faith and credit for the security
of UTGO bonds should cause other states to pass similar
legislation that creates clear statutory liens.
B. Reaction by the Bond Market and Investors
The Detroit bankruptcy called into question the priority of
payments to creditors during municipal debt restructuring from
municipal bankruptcy.121 Historically, investors generally assumed
that UTGO bonds investors and pension benefits received the
highest priority treatment, followed by LTGO bonds, pension
116

See Maria O'Brien Hylton, Central Falls Retirees v. Bondholders:
Assessing Fear of Contagion in Chapter 9 Proceedings, 59 WAYNE L. REV. 525,
525-26 (Fall 2013); see also MARZ & KUKODA, supra note 86, at 4.
117
Hylton, supra note 116, at 525.
118
Id. at 526-27; see also James E. Spiotto, The Role of the State in
Supervising and Assisting Municipalities, Especially in Times of Financial
Distress, MUN. FIN. J., Winter/Spring 2013, at 12-13 (describing the enactment
of Rhode Island's statutory lien statute).
119
Hylton supra note 116, at 527, 559-60 (concluding that municipal
bondholders should not be granted a priority lien that excludes them from the
cost of restructuring municipal debt).
120
See supra notes 107-11 and accompanying text.
121
PIMCO, After Detroit: Rigorous Research and Credit Selection Is the
Key to Investing in Municipal Bonds, MINYANVILLE.COM (Oct. 3, 2013),
available at http://www.minyanville.com/articles/print.php?a=52073

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obligations investment instruments, other general fund claims, and
lastly retiree healthcare obligations.122 Nevertheless, Detroit's
challenging the meaning of "pledge" within Michigan's statute has
caused investment asset managers to recommend that investors
rethink the assumed priority of debts.123 BlackRock, one of the
world's largest investment asset managers,124 recently advised
investors in municipal bonds to consider investing in municipal
bonds that have dedicated revenue streams, like water and sewer
revenue bonds.125 Other recommendations advise investors to gain
awareness of how state law treats UTGO bondholders during
economic distress or bankruptcy of the local governmental issuer,
allowing investors to understand the credit risk of a local general
obligation bond issuance.126
Preferences for state and local government debt include state
and local government debt that is issued by states, "high grade"
local government general obligation debt, local governments in
state with statutory liens, debt secured by sales or gas tax, and
essential service revenue-secured debt.127 As stated in Part IV.B,
five states unquestionably offer statutory liens to UTGO
bondholders. To determine if a statutory lien is granted in other
states, an investor will need to review state statues and
constitutions.128 It is also important that investors carefully review
the description of the security of their investment that appears in
the offering documentation, also known as the official statement,
to "determine whether a statutory lien is present."129

122

Id.
See generally HAYES & SCHWARTZ, supra note 103 (discussing how
Detroit's proposal to treat obligations to all bondholders equally shocked
bondholders and called into question the value of the "full faith and credit"
pledge bestowed to holders of GO bonds).
124
Susanne Craig, The Giant of Shareholders, Quietly Stirring, N.Y. TIMES
(May 18, 2013), http://www.nytimes.com/2013/05/19/business/blackrock-ashareholding-giant-is-quietly-stirring.html?pagewanted=all
125
HAYES & SCHWARTZ, supra note 103
126
Id.
127
Id.
128
See Appendix A for references to all fifty states.
129
Doty, supra note 22.
123

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If investors are uncertain of the security of UTGO bonds, they
are likely to demand a greater yield on their investment to
compensate for the increased risk due to the possibility of having
an investment that is unsecured.130 Higher yields on UTGO bonds
will increase a state and local government's cost of borrowing.
Increased borrowing costs may require higher taxes to repay the
debt, which affects the general public, especially at the local
government level.131
VI. CONCLUSION
The Detroit bankruptcy has not resolved the issue of whether
UTGO bonds in Michigan are secured by pledge of the issuer's full
faith and credit and not merely a simple promise to pay if state law
or a state constitution creates a secured lien. Judge Rhodes did not
rule on this issue, and the matter was resolved through mediation
between the City of Detroit and bond insurers.132 A ruling by
Judge Rhodes would have provided an example to other states on
how to treat future municipal bond issuance subject to municipal
bankruptcy. In future municipal bankruptcies, UTGO bondholders
should argue that state law creates a secured lien. If bankruptcy
courts begin treating UTGO bondholders as unsecured creditors,
bond issuers may incur more cost in issuance, such as paying
higher yields on UTGO bonds to mitigate the risk of loss to
bondholders. Following the lead of the five states that have clear
statutory lien laws, other states should create statutory liens for
UTGO bonds to help shield bondholders from losses in potential
municipal bankruptcies. UTGO bond issuers should be reassured
that their UTGO issuance is indeed secured by the full faith and
credit of the state and local government issuer.

130

MARZ & KUKODA, supra note 86, at 7.
HAYES & SCHWARTZ, supra note 103, at 4.
132
See supra note 71 and accompanying text.
131

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Appendix A
State

General Bond
Protection

Code Section

Alabama

no

ALA. CODE § 11-81-16 (1975)

Alaska

yes

ALASKA STAT. § 37.15.180

Arizona

no

ARIZ. REV. STAT. ANN. § 35-429

Arkansas

no

ARK. CONST. amend . 20

California

yes

CAL. GOV. CODE § 5450

Colorado

yes

COLO. REV. STAT. § 31-21-106

Connecticut

yes

CONN. GEN. STAT. § 3-20h

Delaware

yes

DEL. CODE. ANN. tit. 29 § 7417

Florida

yes

FLA. STAT. ANN. § 215.70 (West 2014)

Georgia

yes

GA. CONST. art. VII, § IV, ¶ 3

Hawaii

no

HAW. CONST. art. VII, § 11

Idaho

no

ID. CONST. art. VIII, § 1

Illinois

no

65 ILL. COMP. STAT. ANN. 85/2

Indiana

no

IND. CODE § 5-1.5-4-2

Iowa

no

IOWA CODE ANN. § 8.57F

Kansas

yes

KAN. STAT. ANN. § 10-1001

Kentucky

no

KY. REV. STAT. ANN. § 45.800 (West 2009)

Louisiana

yes

LA. REV. STAT. ANN. § 39:1402

Maine

yes

ME. CONST. art. V, Pt. 3, § 5.

Maryland

no

Massachusetts

no

MD. CODE ANN., Fin. & Procurement, § 8132
MASS. GEN. LAWS, ch. 29 § 60A

Michigan

yes

MICH. CONST. art. IX § 15

Minnesota

no

MINN. STAT. § 475A.03

Mississippi

no

MISS. CODE ANN. § 31-19-13

Missouri

no

MO. CONST. art. 3, § 37

Montana

no

MONT. CODE ANN. § 7-7-4262

Nebraska

yes

NEB. REV. ST. § 18-2607

Nevada

no

NEV. REV. STAT. § 349.072

New Hampshire

yes

N.H. REV. STAT. § 33-B:6

New Jersey

yes

N.J. STAT .ANN. § 52:27-23.3 (West)

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New Mexico

yes

N.M. STAT. ANN. § 6-12-12

New York

no, but statute
states this does
not apply to
NYC
no

N.Y. LOCAL FINANCE LAW § 85.40, 85.30
(McKinney)

N.D. CONST. art. X, § 15; N.D. CENT. CODE
§ 40-35-15

Ohio

yes, but only up
to the amount of
debt the
municipality is
constitutionally
authorized to
incur
no

OH CONST. art. VIII, § 3

Oklahoma

no

OKLA. CONST. art. 10, § 23a

Oregon

yes

OR. REV. STAT. § 223.235

Pennsylvania

no

72 PA. STAT. ANN. § 3919.311 (West)

Rhode Island

yes

R.I. GEN. LAWS § 45-12-1

South Carolina

S.C. CODE ANN. § 11-23-10

South Dakota

no, but there are
a few projects
which qualify for
the protection
such as schools
yes

Tennessee

yes

TENN. CODE ANN. § 9-9-202

Texas

no

TEX. CONST. art. 3, § 49-j

Utah

yes

UTAH CODE ANN. § 11-14-310

Vermont

no

VT. STAT. ANN. tit 32, § 951a

Virginia

VA. CODE ANN. § 2.2-4902.1

Washington

default is yes, but
can be changed
in the security
instrument
yes

West Virginia

yes

W. VA. CODE, § 13-2A-15

Wisconsin

yes

WIS. STAT. ANN. § 18.12

Wyoming

yes but only if
the city and/or
town has had the
bonds guaranteed
by the state

WYO. STAT. ANN. § 9-4-1002

North Carolina
North Dakota

N.C. GEN. STAT. ANN. § 159-176

S.D. CODIFIED LAWS § 10-12-35

WASH. REV. CODE ANN. § 43.99I.060 (West)