NCPA - National Center for Policy Analysis

Harrisburg Works to Prevent Bankruptcy

June 21, 2011

A Pennsylvania state agency outlined a plan last week to steer the deeply indebted city of Harrisburg toward recovery by streamlining services, downsizing government and increasing certain property taxes if necessary, says the Wall Street Journal.

  • Harrisburg, a city of about 50,000, has been working for months to try to stave off a potential bankruptcy filing that would provide legal protection from creditors but could hurt the long-term standing of the capital city and the state in the eyes of bond markets.
  • The report said Harrisburg faces "a direct, immediate and grave financial crisis" so severe that the city "teeters uncomfortably on the verge of bankruptcy that could be triggered at any moment by parties outside its control."
  • The report also projected that Harrisburg will be out of cash and unable to pay bills or make payroll by the fourth quarter of 2011.
  • It cited a $2 million structural deficit in the city's 2010 operational budget, which it said will grow to $3.4 million in 2011 and top $10 million by 2015.

The plan -- named after a 1987 law, the Municipalities Financial Recovery Act, or Act 47, designed to aid distressed municipalities -- outlines recommendations to help Harrisburg deal with a $300 million debt burden it inherited from a failed incinerator project whose funding the city guaranteed.

  • In particular, the 418-page plan recommends the sale of the incinerator facility to the Lancaster County Solid Waste Management Authority, as well as the sale or lease of assets of the Harrisburg Parking Authority.
  • Some of the plan's main tenets include negotiating contracts to freeze wages, restructure health benefits and control the growth of personnel costs; selling or leasing certain assets; outsourcing commercial sanitation collection; merging two departments; and cutting 19 jobs.

Source: Michael Aneiro, "Plan Aims to Save Harrisburg," Wall Street Journal, June 14, 2011.

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