Capital City Declares Bankruptcy!


As a follow up to my previous post of the Capital Facilities Plan, we have news that yesterday another capital city in the United States petitioned for bankruptcy protection. The City of Harrisburg, Pennsylvania called its creditors to the table for a court mediated settlement/renegotiation of their debts. The reason? Their assets were too highly leveraged and Harrisburg can no longer service the debt.

If Harrisburg’s bankruptcy filing stands, it would mark the largest municipal filing since Vallejo, Calif., did so in 2008. For years, Harrisburg has been struggling under a heavy debt burden, more than $300 million of which is connected to an incinerator project that turned into a financial debacle.

The city had suspended payment on the incinerator loans, but almost a quarter of its budget still goes to an assortment of debt payments, crowding out funding for basic city services.

Essentially, it’s a similar situation that many homeowners are in with the value of their house dropping, the payments increasing, and combination of both. Cities all over the country are struggling to pay off debt that was assumed when the underlying assumptions of the economy were very different from what they turned out to be. I get impatient (surprise! surprise!) with this one too. While you can’t blame any particular local government for going with the flow, you certainly can blame all of us collectively for participating in the madness. It wasn’t commonplace, but there were plenty of people saying the housing price increases were unsustainable among other fissures in the monolith. Many cities sprawled out right along with every new development (cough Lacey cough) assuming long term obligations for roads and other new development infrastructure which now forces them and others in similar situations to double down for new tax revenues. Though each term of each city council may muddle through this game of musical chairs, each also runs the risk of being the last one standing. Harrisburg evidently went through the same dance and lost—the decision to file bankruptcy was controversial and the mayor opposed it (thinking that they didn’t want to be the council to lose Harrisburg). I obviously don’t know the details and I’m not going to look them up, but needless to say, it must have been a tough pill to swallow.

As the article detailed, this is not uncommon, though not yet common.

Harrisburg’s bankruptcy filing comes as a growing number of municipalities across the country are struggling with mounting debt and a decline in revenue in the recession’s aftermath.

Olympia is lucky in that its geography is somewhat limited so that sprawl was not necessarily the path of least resistance as it was in other local municipalities during the bygone debt-fueled free-spending recent past. That, in addition to many older and more established neighborhoods with more dense development (e.g. smaller houses on smaller lots), and longer history of running the city will make it easier to deal with these issues. On  the other hand, we also have a downtown to deal with and no space for a Wal-Mart to move in, which certainly makes things easier for the other local municipalities in question.


Here’s another post with an interview of the attorney handling the city’s bankruptcy filing. It should not surprise you that the attorney being paid to file believes that strategy was correct. Hey, at least attorneys, as opposed to economists, have rules to preclude the ill effects of conflicts of interests.

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