A city goes toes up

Posted at 11:27 AM on October 12, 2011 by Bob Collins (1 Comments)
Filed under: Economy, Politics

You don't often see a capital city of a state declare bankruptcy. I'm not sure we've ever seen it before.

We've seen it now, a possible indication of the growing dysfunction of state and local governments.

Harrisburg, Pennsylvania is filing bankruptcy papers today, owing to a project to renovate a city incinerator.

The move also will be a test of who pays when a city goes belly up: The institutions who lent the money or the people who work for the city?

"The people who lent us money were in the business of lending money; they knew the risk," Harrisburg controller Dan Miller told CNBC, sounding unapologetic about becoming a municipal deadbeat.

"What have you done to the unions?" CNBC's Jim Cramer asked.

"We haven't done anything," Miller said. "In bankruptcy we'll have leverage. Our prior mayor signed five-year extensions just before he left office. They're supposed to get 4 to 5 percent raises a year."

It's been a long-time coming. The city has been trying to sell assets -- parking garages, for example -- to pay the bills, but now the state is threatening to take over the city.

On a wider scale, the move signals worry that municipal bonds, the engine that finances local government projects, may not be much of a safe bet anymore.

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Comments (1)

I'd like to see their books. I'll bet they'll still spend spend spend on busting people with marijuana and other low level crimes.

Maybe they'll take a page from this website and stop enforcing sill crimes like domestic violence.

Posted by Will Bet | October 12, 2011 12:27 PM

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