Broke Cities should Awaken Nation
What is happening in a handful of municipalities across the country doesn’t bode well for the nation’s economic health, either. Two municipalities have filed for bankruptcy protection in the past 60 days, and two others filed earlier this year. Harrisburg, Pennsylvania’s capital, and Jefferson County, Ala., which contains Birmingham, are saying they cannot pay their bills. A federal judge has voided the Harrisburg bankruptcy case, so the state will take over the city’s finances.
In Jefferson County, a large sewer system needed rebuilding and was funded with municipal bonds. More than $3 billion of the county’s debt resulted from that project. Harrisburg is facing a debt of more than $400 million that was largely incurred when the city’s incinerator needed to be rebuilt.
The last large municipal meltdown was when Orange County, Calif., filed what was then the biggest municipal bankruptcy case in U.S. history in 1994 — $1.6 billion — because of investments in risky derivatives. Orange County is still in bankruptcy protection and won’t pay off its debt until 2017. Instead of raising taxes, the county cut its budget by 41% and axed 3,400 jobs.
Cuts like that might be fine in a county that is relatively wealthy, but in Jefferson County, with a poverty rate at more than 16.5%, cuts will be felt deep and wide. Harrisburg, where the population is two-thirds minority, is already struggling to pay for essential services.
Cuts are inevitable in Jefferson County and Harrisburg, although a state or federal bailout would lessen some of the pain. But with federal and state funds tight, that is unlikely, and probably unwise. After all, why should taxpayers in other municipalities bear the burden for ill-advised decisions by another?
Yet, the two bankruptcy cases are being closely watched by other municipalities facing financial crises. In the past, municipalities resisted bankruptcy filings for fear of losing their good credit rating. But recently, more municipalities are filing for protection in efforts to get concessions from debt-holders.
Nationally, our growing debt crisis also bears watching in light of the deadline Congress failed to meet to cut $1.2 trillion over the next decade. Now that the deadline has been missed, cuts — split evenly between domestic and defense — will automatically go into effect by January 2013. As Orange County and Greece have learned, there is no quick fix for decades of fiscal irresponsibility. And that’s a lesson that the United States might have to learn as well.
By: Dr. Julianne Malveaux
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