In the last few months, anyone talking about municipal bankruptcy in the U.S. has probably mentioned Harrisburg. In a lot of cases, I’ve heard it mentioned as an apparent harbinger of what many more places in the U.S. could soon face. In mid-October, the City Council of Pennsylvania’s capital city voted to file for Chapter 9 bankruptcy in the face of billions of dollars in debt and few revenue streams that would come close to covering the bills. As the drama played out, Linda Thompson, Harrisburg’s relatively new mayor objected, claiming state law actually prohibits cities from filing for bankruptcy. More recently, a U.S. Bankruptcy Court judge agreed with Mayor Thompson. However, their serious financial woes remain, and a state takeover of the city is looking increasingly like the only alternative.
I wrote previously about whether local governments being unable to pay for what we think of as basic municipal services may become the new normal. Today I want to delve a bit more deeply into Harrisburg’s situation, because I don’t think that this is a case that is going to be repeated in many, if any, other local governments in the near term. Yes, many other municipalities, mostly small ones, are near bankruptcy. Some in Michigan have already been taken over by state-appointed emergency financial managers. No, easy ways to raise new revenue are not revealing themselves. However, Harrisburg has done a few things that have led it into a unique situation. Let’s review them.
First, there was the incinerator. At one point, Harrisburg believed that what we generally consider a basic public service–garbage disposal–could be turned into a profit center by creating energy and contributing it to the grid as it disposes of waste. In addition, other municipalities that didn’t have ready landfills to bury their own garbage could sell them to Harrisburg, leading to even more revenue for the city, or so the optimistic scenario went. This wasn’t necessarily an off-the-wall idea; Harrisburg has been losing residents and the tax revenue that goes with them for decades, so innovative ways to create new revenue are absolutely vital. And creating electricity from waste sounds about as innovative as it gets, assuming the scheme works. The incinerator has been in operation for over 40 years, but unfortunately it has become a huge problem, as the aging infrastructure required more and more borrowing to continue to function. Today, Harrisburg has over $300 million in debt and about 20,000 fewer residents than it did when the incinerator opened.
Second, there was the museum. Prior to Mayor Thompson’s election, Harrisburg had the same mayor for almost twenty years, Stephen Reed. Being led by the same person for such a long time can be positive or negative for a city, but in retrospect it looks to be quite bad. Mayor Reed was also looking for a new revenue source when he came up with the idea to open the Museum of the Old West, seeking to take advantage of Harrisburg’s long-ago role as the gateway to westward expansion. The problem with this (and I’m depending on other sources here, as 19th century American history is not my area of study) is that almost no one associates Harrisburg with anything related to the”Old West.” Instead, for many the term conjures up images of places thousands of miles west of Harrisburg. Anecdotally, I grew up in New Mexico, and in my mind Harrisburg is a bona fide part of the East Coast and the original extent of the U.S. Would I visit a museum of the Old West in south-central Pennsylvania? Probably not. Nevertheless, for all his other contributions to Harrisburg, Mayor Reed used millions in public funds to indiscriminately purchase items for the museum. Despite his ambitions, this museum–like the supposed profits from the incinerator business–never materialized (perhaps it is now clearer why he lost a primary election to Thompson in 2009). Harrisburg has since attempted to sell anything valuable from the thousands of artifacts Reed purchased as a last-ditch effort to raise money for debt payments, for the first time four years ago and perhaps again in the near future.
What does this mean? The ill-fated museum collection is not likely a major contributor to Harrisburg’s desperate fiscal state, though it certainly didn’t help. But I think it was indicative of a long-tenured mayor not living in reality and thus not helping Harrisburg face its situation head-on. I’ll be looking to see how the city proposes to get back on track, which unfortunately will include major cuts in municipal services as payments to bondholders eat up more and more of its budget. And the biggest problem, in my mind, is that a state takeover will mean that someone other than the city’s elected leaders will be making those decisions.
That said, I don’t think Harrisburg is a harbinger of what’s to come for other American cities, simply because these are relatively unique problems that made a bad fiscal situation worse. Other places that have declared bankruptcy in the recent past have reportedly had their own major problems that dragged down finances while trying to contend with a shrinking tax base: a pricey sewage treatment plant in Jefferson County, Alabama and reportedly super-sized salary and benefit packages for employees in Vallejo, California. If a local government doesn’t have a major drag on its finances, chances are good that it won’t become the next Harrisburg. Stay tuned to this blog for further developments on public sector bankruptcy in America.