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Swing State's Capital Spiraling Toward Bankruptcy Filing

Written by SuperUser2.

Pennsylvania's state capital, long rumored to be on the brink of Chapter 9 bankruptcy appears closer than ever to the brink after rejecting the mayor's suggestion to appoint a state-funded advisor in lieu of seeking guidance on officially filing. Though a point of fierce debate among city policy-makers, the City Council's vote this week to seek advice on filing bankruptcy seems a death knell for those hoping to avoid the dubious fate.

Earlier in the month, Pennsylvania Gov. Ed Rendell (D) hurried state aid to the city to avoid default on debt service despite the governor's long-held opposition to Harrisburg seeking bankruptcy as a solution to its massive budget woes. Harrisburg, PA took multiple hits to its credit rating earlier this year largely because a plan to renovate a trash incineration plant for the city went array. The project came with more than $200 million in debt it guaranteed for the retrofit project, and several officials have argued they have few options short of doubling property tax rates or fire-selling city-held assets

In an interview with NACM earlier this year, Moody's Senior Economist Ryan Sweet said the well-publicized problems have potential to add to the ongoing crisis of confidence.

"The initial impact is a psychological one," said Sweet. "Businesses will be very worried about future taxes in these areas. It could deter some investments if they think taxes are to rise unexpectedly." He adds such uncertainty also could give businesses cold feet regarding adding to payrolls with new or returning employees.

Sweet says cities like Harrisburg are in an even more unenviable position because of budget woes at the state level. Because of its own deficit, Pennsylvania state officials have all but told its capital city that it won't be able to ride to the rescue financially, even if it did throw them a lifeline two weeks ago.

"It puts the city economically at risk of a much weaker recovery," Sweet says. "Harrisburg is very reliant on state government as an employer. They have a few other divers, but they're all pretty much dwarfed by the government's role in the economy."

(Note: More bankruptcy updates on Philadelphia Newspapers LLC, Circuit City and Blockbuster in this week's NACM eNews, out Sept. 30th).

Brian Shappell, NACM staff writer


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