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Harrisburg Goes Bankrupt

The city of Harrisburg, Pennsylvania filed for bankruptcy protection today.  Bloomberg News reports on the dire financial situation:

The state capital of 49,500 faces a debt burden five times its general-fund budget because of an overhaul and expansion of a trash-to-energy incinerator that doesn’t generate enough revenue.

“This was a last resort,” [lawyer Mark] Schwartz said in an interview after the council voted 4-3 to seek bankruptcy protection. “They’re at their wits end.”

(Emphasis mine.)  So… maybe that trash-to-energy compactor wasn’t such a hot idea. 

While bankruptcy would mean the loss of state aid under a law passed in June, it’s preferable to a proposed recovery plan, said Councilwoman Susan Brown-Wilson.

“We’re not incompetent,” Brown-Wilson said. “We’re just not going to let you run us over with the train anymore,” she said, referring to state officials.

Which train would that be?  The Pay Your Debts Express?

Preparing for bankruptcy is going to mire the city in litigation it can’t afford, said Councilwoman Patty Kim, who voted against it.

 “The problem still exists that we still don’t have money, and we still haven’t moved one foot forward,” Kim said.

A-ha!  All aboard the Pay Your Debts Express!  Well, that proposed recovery plan was probably awful, so hopefully the council members who voted for bankruptcy have something better on the drawing board.

In an opinion article published yesterday in a local newspaper, the Patriot-News, the four council members who voted for bankruptcy said Assured Guaranty and bondholders should forgive at least $100 million of the debt.

They also said there should be a countywide sales tax of 1 percent to help pay off the debt. Schwartz, in the interview, said that could forestall asset sales.

Well, there’s a great plan: just demand your creditors forget about a hundred million bucks you owe them.  Assured Guaranty Municipal Corporation is the insurer who has been covering missed payments on the waste-to-energy facility.  They probably won’t mind eating all that debt.

This “debt forgiveness” concept is all the rage nowadays.  Run up a huge credit balance, expressing outrage at any creditor who raises objections along the way.  When you reach the point where it’s literally impossible to make the payments, turn out your empty pockets with a smile and demand a little “debt forgiveness.”  The Harrisburg crisis was a long time coming – a portfolio manager quoted by the Wall Street Journal calls it “one of the slowest moving train wrecks in my memory” – but someone nobody could change course, until it was time to fax over the bankruptcy paperwork.  Something is better than nothing, right, creditors?  You can’t get blood from a stone!

The Journal notes that if Harrisburg files bankruptcy, it “would likely impose significant losses on bondholders, which could have ripple effects on the state’s credit rating and the broader municipal bond market.”  Republican Governor Tom Corbett, the state Senate, and county authorities are not pleased:

“From our perspective, it is an illegal action,” said Kelli Roberts, a spokeswoman for Gov. Tom Corbett, adding that the governor’s general counsel was evaluating options for a response. “It won’t stand.”

Officials of Dauphin County, where Harrisburg is located, also said in a statement that they doubted the filing was legal. County Commissioners Jeff Haste, Mike Pries and George P. Hartwick, III called the city council’s maneuver “nothing more than a delay tactic to avoid making the tough decisions necessary to resolve the city’s debt crisis.”

Robert Philbin, a spokesman for Mayor Linda Thompson, who has opposed such a filing, said it will add complications and expenses for the city, and pointed to a recent poll of registered Harrisburg voters showing only 13% supported a bankruptcy filing.

The state Senate is trying to pass a bill that would put Harrisburg into receivership, which Bloomberg News notes would have one major drawback:

The Pennsylvania Senate is scheduled to take up legislation next week that would make Harrisburg the first municipality in the state to be placed in receivership.

The council in July and August rejected fiscal rescue blueprints from consultants hired by the state and Mayor Linda Thompson, triggering the legislative response.

The bill would let Republican Governor Tom Corbett declare a fiscal emergency in Harrisburg and name a receiver who would develop a recovery plan. The manager would be able to sell assets, hire advisers and suspend the authority of elected officials who interfere. Unlike in Michigan, the receiver wouldn’t be able to change union contracts.

Harrisburg is the third local government to throw in the towel and file bankruptcy, following Central Falls, Rhode Island and Boise County in Idaho.  There will be more to come.  A lot of cities and states will soon be looking for bailouts from a beyond-bankrupt federal government, as many slow-moving trains begin rolling off the insolvency rails, and somehow no one is held accountable.  Bankruptcy just happens.

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Written By

John Hayward began his blogging career as a guest writer at Hot Air under the pen name "Doctor Zero," producing a collection of essays entitled Doctor Zero: Year One. He is a great admirer of free-market thinkers such as Arthur Laffer, Milton Friedman, and Thomas Sowell. He writes both political and cultural commentary, including book and movie reviews. An avid fan of horror and fantasy fiction, he has produced an e-book collection of short horror stories entitled Persistent Dread. John is a former staff writer for Human Events. He is a regular guest on the Rusty Humphries radio show, and has appeared on numerous other local and national radio programs, including G. Gordon Liddy, BattleLine, and Dennis Miller.

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