You don’t often see a capital city of a state declare bankruptcy. I’m not sure we’ve ever seen it before.
We’ve seen it now, a possible indication of the growing dysfunction of state and local governments.
Harrisburg, Pennsylvania is filing bankruptcy papers today, owing to a project to renovate a city incinerator.
The move also will be a test of who pays when a city goes belly up: The institutions who lent the money or the people who work for the city?
“The people who lent us money were in the business of lending money; they knew the risk,” Harrisburg controller Dan Miller told CNBC, sounding unapologetic about becoming a municipal deadbeat.
“What have you done to the unions?” CNBC’s Jim Cramer asked.
“We haven’t done anything,” Miller said. “In bankruptcy we’ll have leverage. Our prior mayor signed five-year extensions just before he left office. They’re supposed to get 4 to 5 percent raises a year.”
It’s been a long-time coming. The city has been trying to sell assets — parking garages, for example — to pay the bills, but now the state is threatening to take over the city.
On a wider scale, the move signals worry that municipal bonds, the engine that finances local government projects, may not be much of a safe bet anymore.