Harrisburg: State capital’s bankruptcy underscores U.S. financial woes
RENATA D'ALIESIO AND JACQUIE MCNISH
HARRISBURG AND TORONTO— From Saturday's Globe and Mail
Published Friday, Oct. 14, 2011
Under a forbidding grey sky, Anthony Palumbo wraps himself in a burgundy apron to begin the morning kitchen ritual his father started 35 years ago after he emigrated from Naples, Italy, to open a pizzeria in Pennsylvania’s capital, Harrisburg.
Palumbo’s Italian Eatery has thrived despite some of the worst possible local disasters, including the fallout from the 1979 nuclear meltdown at the nearby Three Mile Island reactor and the decline of the local steel industry. One block south of the eatery, the city’s council delivered another blow on Tuesday when it voted to file for bankruptcy protection from its creditors, marking what is believed to be the first declaration of insolvency by a U.S. state capital.
Mr. Palumbo knows that times are tough in the picturesque town of 47,000 overlooking the Susquehanna River. There are fewer cars parked in the local municipal lot, crime is on the rise and customers are scarcer. Despite these setbacks, he believes the city and his family business, which now includes six restaurants, will survive the turmoil.
“Overall, I think it’s going to be okay,” he says with a shrug. “This is the state capital. When you get down to it, it’s a really nice city.”
To some experts, Mr. Palumbo’s optimism personifies the kind of resilience that will help U.S. cities weather the worst financial strains they have faced since the Depression. To others, it represents the kind of denial that has blinded citizens, politicians and investors to towering municipal debt levels that are eroding the quality of urban life Americans have taken for granted for decades.
Harrisburg is one of only a small handful of U.S. cities that filed for bankruptcy protection in recent years. Robin Prunty, managing director of Standard & Poor’s public finance unit, said she does not expect to see a significant increase in bankruptcy filings, but she expects more cities and towns will come under pressure to further cut costs because of falling revenues.
“We do see continued budget stress in the near term,” she said.
There are an estimated 90,000 municipalities in the United States, and in the past decade their total debts have increased by a third to an estimated $3-trillion (U.S.). Historically, municipalities have sold bonds to pay for local improvements such as new hospitals, schools, roads and other infrastructure projects. The financial crisis has driven many stretched municipalities to borrow for another reason: to cover their costs.
Most cities depend on property taxes to pay the majority of their bills, but these revenues have shrunk in the wake of the nation’s housing crisis and falling real-estate values. Many municipalities are restricted by local laws from raising taxes, presenting political leaders with the choice of cutting services or borrowing more to pay the bills.
Harrisburg is a poster child for cities that would rather borrow than cut costs. Debt on an electricity-generating incinerator have soared from $12.5-million to $310-million after three decades of overhauls and upgrades, burdening the city with annual interest costs that now exceed its budget.
Since she was voted into office in 2009, Harrisburg Mayor Linda Thompson has defied mounting pressure from bondholders and the state government to pay the city’s debts by slashing jobs and assets.
“To disrupt [services] because we can’t make a bond payment would just be unconscionable. As a leader, I couldn’t do it,” she said in an interview late last year.
After a year of jousting with bondholders and a state government that is threatening to take control of Harrisburg, Ms. Thompson was outgunned by the city’s council on Tuesday when a narrow majority voted to start bankruptcy proceedings. The move will give bondholders more leverage to wrestle owed debt payments.
For business patrons at a local cigar shop called the Tinder Box, the air is starting to clear in Harrisburg after years of political infighting over the city’s debts.
“Harrisburg is just a microcosm of what's going on throughout the United States,” said Richard Harper, who owns a local financial-services company. “You can't continue to burn more money than you’re bringing in.”
Now that the process has started with the bankruptcy proceedings, Mr. Harper said he has become very concerned about the quality of life in a city where nearly 30 per cent of the population lives below the poverty line, and city outskirts are flanked by abandoned homes. He recently purchased a gun permit, and he is fine-tuning plans to move his business outside Harrisburg.
Over at Royal Cleaners, Hanna Shin has no plans to leave. An immigrant from South Korea, she opened her dry-cleaning store 19 years ago. Flanked by pictures of her customers’ children and the state’s governor, Tom Corbett, Ms. Shin, 63, says her business has survived the harsh times because of her loyal clientele. She hopes to keep the store open until she retires in two years.
“I want the city of Harrisburg to be alive, not dead,” Ms. Shin said. “No matter what is happening, this is the capital of Pennsylvania.”
Bank of Canada's, Mark Carney to head Financial Security Board?
-- Jim Flaherty, also made contributions in the CBC documentary. He defended the US, WS by pointing out similar practices are also occuring world wide (in another clip, shows possibility of China's housing bubble, which can as well have worldwide, financial implications [job losses, homelessness, etc., elsewhere; there's a few around, China is a concern, because obviously, it's a big one, if it goes unstable, more global impacts on economies abroad as well). In the global context, it shows countries need to work together on agreements, because of at least partial integration ("New World Order") among economies.
