On Monday Oct. 17, a federal judge heard arguments about whether Harrisburg, Pa., could move ahead with a bankruptcy petition. The mayor of Harrisburg is fighting a 4-to-3 City Council vote that allowed the city to file for bankruptcy. The city is now hundreds of millions of dollars in debt, with six pending lawsuits. The filing of bankruptcy is strongly opposed by Mayor Linda D. Thompson, who refused to sign the filing. Harrisburg’s bankruptcy filing comes as a growing number of municipalities across the country are struggling with mounting debt and a decline in revenue in the recession.
Does this mean that the city is in trouble? “Bankruptcy may lead to layoffs of some city employees, sale of assets such as parking garages and incinerator, reduction in salaries and benefits for city workers. Taxes on residents and commuters may rise. All these will make the city a less attractive place to live and work in,” Dr. Sanjay Paul, chair of Elizabethtown College’s business department, said.
To help with the issue, the city has suspended payment on the incinerator loans, but a quarter of its budget still goes to an assortment of debt payments. Before the filing occurred, the City Council voted twice to reject a state takeover plan, which the council members believe would have only brought temporary debt relief, as well as sparing creditors and forfeiting the city’s fiscal future.
With all the issues of spending and debt, and possibilities of public services being affected, will this affect the people around the city? “The bankruptcy filing is problematic, but really just a symptom of a more systemic problem. The city doesn’t have the financial resources necessary to meet its obligations, so people are likely to see cuts in city services. The state takeover may alleviate some of this, as the governor has pledged not to let Harrisburg citizens go without emergency services,” Dr. April Kelly-Woessner, chair of the College’s political science department, said. “This does impact the business climate. Investors and entrepreneurs will be leery about setting up shop in a city that faces economic insecurity,” she continued. “As the city is forced to cut spending and work with the state-appointed manager to develop a plan for economic stability, some city jobs will be cut to reduce spending. On the bright side, there is likely to be a high-level job opening in the mayor’s office.”
The people of Harrisburg have to wait and see what is to come. It is unknown if they will be affected or not. “There is a possibility of a city commuter tax or sales tax. If either a sales tax or a commuter tax is implemented, that will certainly cost individuals who shop and work in the city of Harrisburg more money,” Dr. Kyle Kopko of the College’s political science department said.
With more cities and towns feeling the stress of the recession, municipal bankruptcies do not occur frequently. Since 1980, fewer than 300 of the nation’s 19,000 municipalities have filed for bankruptcy, and some analysts believe that more bankruptcies make it harder for local governments to borrow municipal bonds to finance the necessities.
It is still unclear what the implications of the bankruptcy will mean but it will be seen in a few weeks since the hearing is set for Nov. 23. “Depending on the exact terms of bankruptcy or the financial recovery plan that the state implements, there may be cuts to city services, but we’ll have to wait and see what happens in the coming weeks. Again, a lot depends on whether Harrisburg is permitted to move forward with filing bankruptcy,” Kopko said.
If Harrisburg’s bankruptcy filing stands, it would mark the largest municipal filing since Vallejo, Calif. did so in 2008. Harrisburg has been struggling for years under a heavy debt burden. Over $300 million is tied to an incinerator. This is a developing issue and the outcome depends upon how the city will ultimately deal with the massive financial debt.