The capital of the Keystone State is swirling with political infighting and power grabs over the issue of money. There is just not enough of it to pay all of Harrisburg’s creditors who have appeared at the door. Now that the county has said “Enough!” to providing more loans to cover debt payments, it’s the end of road and events are accelerating.
Harrisburg had already filed for municipal bankruptcy a week ago, but that didn’t stop the state from finalizing legislation that will put the city into receivership. Pennsylvania’s latest move adds another layer of complexity to the resolution process. The Harrisburg City Council responded to the state’s action with the following statement published in the Patriot News:
“First, they attempted to restrict the city’s ability to generate revenue and negotiate with its creditors, which were allowed in the Act 47 law, as well as penalize the city if it filed for bankruptcy. But that wasn’t good enough. Now, this takeover legislation gives a receiver unlimited power to sell any resource the city and its authorities have, without allowing Harrisburg an alternate source of revenue.”
“Wall Street can get paid 100 cents on the dollar and the people of Harrisburg will be subjected to exorbitant property tax and other increases so that we can pay our operating budget. And after all the city’s assets are sold and the city is on its knees, the receiver has the ability to file for bankruptcy to pick the bones of our city clean.”
Harrisburg mayor Linda Thompson rightly contends, in the Bloomberg video above, that the city is not technically in bankruptcy. This is true because the federal bankruptcy judge overseeing Harrisburg’s case has not yet ordered a public notice of the Chapter 9 bankruptcy filing to be publicized in the Wall Street Journal and Harrisburg Patriot News. But this is a mere technicality because Mayor Thompson’s city is drowning in debt and doesn’t have sufficient assets and annual cash flows to support that debt. In blunt terms Harrisburg is insolvent; there are three paths forward that it can travel.