Harrisburg, the capital of Pennsylvania is considering bankruptcy protection as it faces debt payments it can't meet. This comes as many believe that municipal bond defaults will grow as cities and states face rising debt costs and shrinking tax revenue.
"Every option, including tax and fee increases, bankruptcy and a state takeover through Pennsylvania’s Act 47 municipal oversight program will be considered, said Susan Brown-Wilson, chairwoman of the Budget and Finance Committee, which began a week of hearings last night to consider a 2010 spending plan.
The $68 million in debt service payments that Harrisburg faces in connection with the construction of a waste incinerator this year is four times what the city of 47,000 expects to raise through property taxes, and $4 million more than the city’s entire proposed operating budget."
WGAL, a local Harrisburg television station provides more context on the problem.
The city was going to try and meet its debt obligations via a crisis sale of some key assets, including historic downtown market, an island in the Susquehanna River that includes the city’s minor-league baseball stadium, and the city’s parking, sewer and water systems.
The proposal was vetoed by the city council.
In a paper entitled the Coming Collapse of the Municipal Bond Market Frederick Sheehan argues that rising debt payments, rising municipal salary and pension costs, and shrinking tax revenue are creating a perfect storm for turmoil in municipal markets.
Clearly, Harrisburg spent beyond its means in building the waste incinerator. But how many other municipalities are in the same situation?
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