Sometime this spring, if events proceed as planned, receiver Gen. William Lynch, we all hope, will announce a comprehensive resolution to the ongoing municipal debt crisis in Harrisburg. There has been much public and private speculation about the details, but the broad outlines are well known.
Each of the major stakeholders will be called upon to make sacrifices as part of a settlement: the City of Harrisburg and its taxpayers; city employees and their unions; and Dauphin County and the bondholders (and particularly the insurer of the bonds).
Participants and observers have noted that there are four broad categories to tap for any resolution: the sale of city assets including the parking garages and incinerator; changes to city employee union contracts to more closely reflect the city’s ability to pay; Dauphin County participation as guarantor of the bonds; and debt concessions by the bondholders. In theory, at least, if the required sacrifice is shared relatively evenly among the stakeholders, a negotiated resolution can be reached.
While it is clearly impossible to comment on details prior to a settlement being completed and released, it’s equally clear that everyone in the greater Harrisburg community has a tremendous stake in seeing (and supporting) a resolution. Any resolution will require great courage among our elected officials as it is never easy to tell employees that they will be paid less, taxpayers that they will pay more and bondholders/insurance companies that they will receive less. But that is the action they must take, for the sake of all of us.
Nearly any settlement that combines a roughly equal measure of sacrifice from all the parties will be, by definition, difficult for those parties to swallow. But they must. For, in absence of such a resolution, the prospect of bankruptcy looms large and ominously over the city and region—and over the bondholders, as well.
As Gen. Lynch has said repeatedly, the prospect of bankruptcy is a lose-lose-lose for all involved. Municipal bankruptcy is a very uncertain area of the law. No one can predict how it will turn out, who will benefit and who will hurt. Municipal bankruptcy is also inherently undemocratic as a bankruptcy judge has final authority with the potential to sweep aside local elected officials and others—such as the receiver—who have been put in place by elected state officials.
The most important reason to avoid bankruptcy, however, is the time it would take to reach a resolution and the continued uncertainty throughout that period. Harrisburg can begin its recovery, but only after we know the path forward. Delaying this day of reckoning for several years or more—as bankruptcy would no doubt require—will only make things worse for all of us. If we delay, the overall debt that must be overcome only gets larger, making all parties collectively worse off and the eventual resolution that much more harmful. Only a naïve party under a mistaken belief that its faction will gain at the expense of the other parties would selfishly wish to go down such a path, perhaps ironically to their own detriment. Imagine what would happen if a judge ordered the burden to fall completely on Harrisburg taxpayers, causing already high tax rates to skyrocket, to get a feel for the “scary” side of bankruptcy. Fortunately, all the other parties have equally scary scenarios to contemplate as they consider compromise.
If and when the settlement does happen, we can all get back to the good work of building and improving our capital city (and reporting all of those great stories to our readers) instead of waiting for what “might” happen.
I happen to believe that the receiver is providing the leadership necessary to pull together a settlement that, while difficult for all, will allow our city and region to move forward on much more solid financial footing. If and when he does, we will all owe him—and the many folks who worked with him to craft a solution—a large debt of gratitude, for helping us put our collective debt, and some of our darker fiscal days, mostly behind us.
J. Alex Hartzler is publisher of TheBurg.
