When Cities Go Broke. A Conceptual Introduction to Municipal Bankruptcy in the U.S.


Today, each weekday morning between 7:00 and 9:30, Harrisburg seems to come to life as many, if not most, of its work force hurry from homes in the suburbs to jobs in the city.  Then about 3:30 in the afternoon the process reverses and by 6:00 in the evening life at the heart of the city appears to be suspended.  Harrisburg’s economic base no longer rests on manufacturing but on government administration and services, or lack thereof.

Bankruptcy provides the equivalent of a pause button for Harrisburg. It retains services and provides structure so you don't have a bunch of lawsuits. For many, bankruptcy might as well be a life sentence, especially to those diagnosed with serious health conditions. The average citizen will not put up with this kind of bubble happening to burst. Their home prices have plummeted, they have no jobs, a lot of people are simply getting fed up with being referred to as a bankrupt city, so that they have to resort to crime.  We should be asking from cities like Harrisburg to make the right decision, not destroy the property values in a city, which bankruptcy will do.  Stating the problem with Harrisburg from a financial perspective I believe we need to be examining timeliness of resource acquisition.  After all, when it comes to Harrisburg’s financial mess, it’s all about delay, stall, postpone.

Under a bankruptcy filing, officials would retain power over day-to-day city operations and staffing, but a judge would take over all decisions concerning the city's debts.  The city of Harrisburg now has a workable financial recovery plan approved and directed by the court as well as a strong receiver and increased market momentum in terms of the incinerator sale and the leasing of parking operations. There is a difference between an illegal bankruptcy filing and a serious filing when it comes to affecting recovery methods. To put some history behind Harrisburg’s demise in perspective, during the depression of the 1930s, 4770 municipal units defaulted in the payment of interest or principal on some 10 percent of the then outstanding total of $15 billion of municipal bond issues.  With no legal procedures available to facilitate the adjustment of this debt, any adjustment of the debt could be effected only through a common law composition agreed to by all creditors.  With no possibility of compelling creditors to assent to such a composition, to attempt it was almost always a futile gesture.  Not anymore.  As of September, 2012, it seems that the bankruptcy endgame for Harrisburg will most likely be avoided, in my view, because all the negotiating parties, under strong leadership, are working hard and remain flexible and open to compromise to avoid the perception of irrational self-interest.

Sign Up for E-News

In assessing the problem with municipal bankruptcy, the initial step in trying to avoid bankruptcy is to clearly and dispassionately assess the underlying problems that are pushing the municipality in that direction.  The degree of self-awareness and transparency among municipalities can vary widely, and for some, one of the main problems may be just getting a good handle on the real drivers of financial stability and solvency.  If a municipality cannot identify in clear terms the specific factors that are driving revenues down and/or expenses up, it has some serious work to do before walking into bankruptcy court.

I still believe that bankruptcy is a worse option but not the worst option for the city of Harrisburg and for the region of Dauphin County, Pennsylvania.  The worse option would be to allow every month go by, and have the debt get worse all the while attempting to float money from taxpayers who do not want to share in the pain.  Under Chapter 9, there are some assumptions people are making, they assume general obligation debt can be crammed down.  From our advisors, they’ve looked at it, and there are serious questions under the Pennsylvania Constitution if general obligation debt, in fact can be crammed down.  Moreover, cases of bankruptcy that haven out there have been quite costly and municipalities that have come out of it, it takes them a long time.  It hurts everything from their workforce to their credit rating to their ability to purchase from the future.  The other point I wish to make is that, even if you go to bankruptcy, a plan has to be there.  A plan doesn’t just appear out of the sky.  It goes back to the municipality involved to develop a plan.  So the plan is more often than not is going to be similar to the plans we’ve already seen out there with Orange County, California, leading to its Chapter 9 filing in 1994 or a large judgment rendered against the municipality such as hat experienced by Desert Hot Springs California, leading to its chapter 9 filing in 2001.

Fiscal stress related to ongoing structural deficits and lack of reserves is much more difficult to tackle because a financing will have little impact on soling the underlying structural problem:  in fact this tactic will likely make things worse by increasing the overall cost to the municipality.  In times like these, painful cuts in service levels, employee compensation and other expenses maybe required, as well as increased revenues through higher taxes or fees.  Yes, bankruptcy protection may be needed to avoid immediate sanctions for breaching contracts, which include labor agreements, missing debt service payments or failing to provide required levels of service.  However, I want put a face to a problem and offer this as a reminder of all that went wrong within a city like Harrisburg since the mid 1980s.

 The Guest Column is our readers' opportunity to write about a given issue or topic in an in-depth and educational manner.

The opinions expressed herein are the writer's alone, and do not reflect the opinions of TAPinto.net or anyone who works for TAPinto.net. TAPinto.net is not responsible for the accuracy of any of the information supplied by the writer.

TAP Into Another Town's News:

You May Also Be Interested In

Sign Up for E-News

Berkeley Heights

Third Annual Rockin' For Autism Music Festival

February 18, 2018

All-day festival benefiting Autism New Jersey will feature local bands, food trucks, vendors, a merchant raffle, bake sale, obstacle course and lots of family fun! Join us for a day of great music, food, fun -- and help us raise funds and awareness for a great cause.

The event will take place from 11 a.m. to 6 p.m., Saturday. April 14, in LaGrande Park. 200 LaGrande Ave., ...

HOLD: Fellowship Helping Hands Receives Home Care Award

Fellowship Helping Hands, the home care agency operated by Fellowship Senior Living in Basking Ridge,  has received the 2018 Best of Home Care® – Provider of Choice Award from Home Care Pulse, announced Liz Fandel, vice president of Home Community Based Services at Fellowship Senior Living.

Fellowship Helping Hands is a New Jersey licensed home care service for older and ...

New Jersey Youth Symphony Announces Bring A Buddy Week March 4-8

NEW PROVIDENCE, NJ—New Jersey Youth Symphony (NJYS) invites young musicians in grades 3-11 to attend open rehearsals for Bring A Buddy Week, March 4-8 at 570 Central Avenue in New Providence. Participating students will observe the first half of a rehearsal. Students can visit any ensemble based on their grade and experience level. Students who do not have a friend in an ensemble can still ...

Moms Demand Action for Gun Sense Will Meet on Tues, Feb. 20, at LaGrande Park Building

FANWOOD, NJ -- Following the mass shooting in Florida this week, the Union County Chapter of Moms Demand Action for Gun Sense will meet on Tuesday, Feb. 20, at 7:00 p.m. at the LaGrande Park Building  in Fanwood.

"Every life cut short by gun violence -- that somehow becomes a statistic -- is tucked away in our hearts, never to be lost," wrote Patti ...

Colleen Mahr Is The Leader Our Party Needs

February 13, 2018

Dear Editor:

My name is Patti Murgo. I am Committeewoman in Linden’s Eighth Ward. I am a life-long  DEMOCRAT, a party activist, and a believer in what being a democrat stands for. Last week, I received a piece of literature from our municipal chairman, Nick Scutari, regarding his “plans” for the County Democratic Party if he is elected county chairman.


No One Is More Qualified and Capable to be Our Next Democratic Committee Chair Than Colleen Mahr

Dear Editor:

Mayor Colleen Mahr has been a pillar of consistency in Union County for the last 20 years, having devoted her life to public service. There is no one more qualified and capable to lead us as our next Union County Democratic Committee Chair.

Colleen has mentored, coached and supported countless candidates running for office in Union County, all across our 21 ...

Mayor Colleen Mahr Is a Strong and Capable Leader

Dear Editor:

In  all the years I’ve known Mayor Colleen Mahr, I’ve found her to be a strong and capable leader, completely dedicated to the needs and success of every municipality in Union County.

 As  Vice Chair of the Union County Democratic Committee for the past five years, she's earned the right to take her seat at the head of the ...

Chatham Borough Police Chief Crosson has Retired; Captain Gibbons is Acting Commander

February 12, 2018

CHATHAM, NJ - Phil Crosson Jr., who has been a member of the Chatham Borough Police Department since 1992, retired from his position as the police chief on Feb. 1.

"It came on pretty quickly," Crosson said when reached by phone on Sunday. "I was on vacation for six weeks and I bought a business. I came back for one day and retired."

According to Crosson, ...

‘Reefer Madness’ Comes to Chatham Borough Council; Cannabis Advocates Make Pitch for Chatham Marijuana Shop

February 14, 2018

CHATHAM, NJ - A group of pro-cannabis activists came to the Borough of Chatham Council meeting on Monday night and used the public commentary portion of the meeting to ask the council to support a marijuana dispensary in town.

The advocates, who say they have attended more than 80 town meetings to inform about the benefits of medical cannabis, mentioned the 1936 movie "Reefer ...

Upcoming Events

Sun, February 18

Scherman Hoffman Wildlife Sanctuary, Bernardsville

NJ Audubon: Volunteer Art Show!

Arts & Entertainment Green


Sun, February 18, 3:00 PM

Lawton C. Johnson Middle School , Summit

New Jersey Intergenerational Orchestra Free ...

Arts & Entertainment

Sun, February 18, 7:00 PM

Villagers Theatre, Somerset

Hairspray Auditions

Arts & Entertainment

Mon, February 19

Scherman Hoffman Wildlife Sanctuary, Bernardsville

NJ Audubon: Volunteer Art Show!

Arts & Entertainment Green

Mon, February 19, 7:00 PM

Villagers Theatre, Somerset

Hairspray Auditions

Arts & Entertainment

Tue, February 20

Scherman Hoffman Wildlife Sanctuary, Bernardsville

NJ Audubon: Volunteer Art Show!

Arts & Entertainment Green

Invest Like a Tortoise -- Not Like a Hare

Aesop’s “The Tortoise and the Hare” is a perfect metaphor for the way people go about investing their money. As you recall in the fable, the hare brags about his ability to beat the tortoise and is overly confident about winning. In the investment world, the hare is someone who thinks he or she is great at selecting “winners” and avoiding “losers.” The ...