Harrisburg Pennsylvania Facing Bankruptcy

Harrisburg, Pennsylvania is bankrupt and has been for years. Instead of recognizing that simple fact, the mayor and most of the city council have been looking for miracles.

There are no miracles and there will be no miracles. Fortunately, and at long-last, the city council rejected Mayor Linda Thompson’s scheme of selling city assets to deal with debt issues.

Harrisburg now faces a state takeover.

Please consider Harrisburg City Council Rejects Fiscal Plan to Rescue Pennsylvania Capital

Harrisburg’s City Council rejected a fiscal-recovery plan proposed by Mayor Linda Thompson, putting state aid at risk and leaving Pennsylvania’s capital in financial limbo.

By a vote of 4-3, the council turned down the mayor’s blueprint, which called for asset sales. The proposal wouldn’t provide a guaranteed fix of the city’s debt problems and, by selling off assets, raised the possibility of higher taxes later, said Councilman Brad Koplinski.

“It is a plan, yes, but it’s an unreliable one,” Koplinski said. “It’s making sure that Wall Street gets paid and Main Street gets the shaft.”

The decision means the city has no procedure to deal with more than $300 million of debt, or five times its general-fund budget. Harrisburg helped finance improvements to a municipal incinerator that hasn’t generated enough revenue to pay its costs. The city of about 49,500, where a third live below the poverty level, may skip a $3.3 million payment next month.

The move may hasten a state takeover, Councilwoman Patty Kim said last week.

Inquiring minds note that the Patriot-News Editorial board says Harrisburg should approve flawed Act 47 plan because a state takeover will be even worse

The real question for Harrisburg City Council tonight when it votes to accept or reject Mayor Linda Thompson’s fiscal recovery plan is whether local control or a state takeover is better for city residents.

A yes vote on the plan means local officials will lead with help from the state and county. A no vote means that what happens in Harrisburg will be left to either a state-appointed panel or the courts.

There is certainly plenty to dislike in Mayor Linda Thompson’s plan. It is horrendously written with many grammatical errors. The mayor also added new initiatives that are not fully vetted or clearly funded, such as the blight program.

Perhaps the biggest concern to most taxpayers is the property tax increase. It is likely to be higher than $50 a year for the average homeowner. That is a best-case scenario if assets are sold, union contracts renegotiated and hundreds of little changes made.

But despite this plan’s flaws, what is the alternative?

The city’s creditors are pursuing lawsuits that would force Harrisburg to pay immediately.

Bankruptcy is off the table. The state is forbidding it for at least a year, and it’s almost certain the Legislature and governor would extend that ban.

The editorial board lacks common sense. Regardless of what anyone says, Harrisburg is bankrupt.

The citizens of Harrisburg certainly do not need higher taxes, and the city needs to get rid of a mayor who cannot type English sentences properly.

There simply is no alternative to bankruptcy and now the courts can and will deal with bondholders who refused to take proper haircuts and also deal with untenable public union contracts as well.

Moreover, one nice bankruptcy will lead to another, and another, exactly the relief cities need. Public unions will get what they have coming to them: slashed benefits and contracts tossed out by the courts.

What can possibly be better than that? Certainly not higher taxes.

About the author: Mike “Mish” Shedlock is a registered investment advisor representative for Sitka Pacific Capital Management. His top-rated global economics blog Mish’s Global Economic Trend Analysis offers insightful commentary every day of the week. He is also a contributing “professor” on Minyanville, a community site focused on economic and financial education. Every Thursday he does a podcast on HoweStreet and on an ad hoc basis he contributes to many other websites, including UnionWatch.