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Harribsurg, PA - A Doomed City?
With the buzzword du jour continuing to be [municipal/state/sovereign] default, it is time to consider the city of Harrisburg, PA, which many consider is next on the default escalation series of events. Some perspectives from Janney Fixed Income Strategy analysts Alan Schankel and Tom Kozlik.
Four months after Moody’s downgraded the City of Harrisburg to below investment grade, City financial managers are considering
options to make the PA capitol’s debt load more affordable, prompting worries about a voluntary restructuring.
Recent news stories have highlighted the fiscal distress of Harrisburg, PA (Ba2/NR). In October of 2009, Moody’s downgraded the City’s debt from Baa2 to Ba2, and retained the credit on Watchlist for potential further downgrade. Many of Harrisburg’s financial challenges emanate from the City’s guarantee of about $288 million in debt issued to retrofit and modernize a waste management facility originally built in 1969. Harrisburg skipped over $3.5 million in debt service and swap payments last year, leading to draws on reserves as well as assistance payments from Dauphin County.
In hearings this week, City Council members said every option to address the City’s fiscal challenges was on the table. Potential actions include tax and fee increases, asset sales and applying for help from Pennsylvania. The possibility of filing for bankruptcy, under Chapter 9 of the federal Bankruptcy Code, was also mentioned as an option. State help is available under Pennsylvania Act 47, known as the “Distressed Municipalities Act,” which provides resources to distressed communities potentially including grants, interest free loans, and administrative assistance. It also governs when and how a municipality can file for bankruptcy under federal
laws. According to the state’s website (http://www.newpa.com/get-local-gov-support/technical-assistance/request-...), 25 communities in the state have had distress determinations since the law’s 1987 enactment, including the cities of Scranton, Pittsburgh and most recently Reading.
The prognosis for Harrisburg is unclear, as the financial hurdles it faces are substantial. Possible asset sales include an historic downtown market, an island in the Susquehanna River which includes the stadium for the City’s minor league baseball team, and some or all of the City’s parking, sewer and water systems. As Moody’s noted in an October 2009 report, the City has a ”stagnant tax base with a notable tax-exempt component, low income and wealth levels and a high poverty rate.” The City cannot “tax” its way out of the hole, and the political will to do so is limited in any case.
It is unlikely Harrisburg will arrive at a solution to its problem in the near future; what is more likely is that the City will seek state support through the aforementioned Act 47, and subsequently develop a plan to dig out of its hole. Historically, few of the communities invoking Act 47 have found quick fixes, and the act is certainly not a panacea. Altoona, for example, was determined to be under fiscal distress in December 1987--shortly after the enabling legislation was passed--and remains under state supervision to this day. The circumstances surrounding Harrisburg are unprecedented. It remains to be seen if bankruptcy will be an element of any plan, although it seems unlikely in the near future since city officials and the state will need time analyze the problems and develop possible solutions before taking the most aggressive of potential actions.
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The Muni Bond market is a $3 trillion market; very few people get just how dangerous it might get. Vallejo,CA filed banko some time ago; how it ultimately turns out might set a precedent for other cities to follow suit.
Oh yes.. then we come to the retirement plans and CDS's written on these mini nuclear bombs.
http://themeanoldinvestor.blogspot.com/2009/11/problem-with-muni-bonds.html
Pensions and CDs...ding ding ding!
It goes now. The whole system goes now.
The handwriting is on the wall.
Ron Paul predicts chaos and blood in the streets in America:
http://www.youtube.com/watch?v=sPQs6ri7Dt0
That was awesome.
If they can turn you into a "terrorist" and an axis of evil just for having oil and resisting having your society torn to shit in the middle east. They can turn you into a "anti-social" or "terrorist" or whatever simply by billing you lies loaning you bullshit and making normal everyday trying to survive "wrong".
I'll likely bash some "authorities" head in saw it off with a hacksaw. Bash his asshole in and stick his caved in head inside the asshole cavity. It will be nice to experience NOT having sympathy for your tormentors and controllers and I will revel in my wrongness.
You want to play the we can't live without strict authority games. Let's play. I'll be careful who I target. I can't even watch someone break their arm on a skateboard accident without becoming sick with sympathy, I wonder if the powers that be will let the guy who's head I'm sawing off with a hacksaw know that. NOW THAT'S irreconcilable differences if there ever was any.
Lying cheating stealing manipulating assholes don't get to have the muscles and respect of law enforcement when they won't follow a single law themselves unless it suits them. If they want to play with primal forces of psychopathic rage against authority. Let's play.
No it wasn't.
The start was good, a preview of coming attractions.
After that, he segued quite smoothly into the usual
Libertarian nonsense. Balance the Budget! No Federal Income Tax!
If he were president he would just be another clueless
ideologue. While the current situation may be unique, the the proposed solutions are always stale. There is no one in the country who can think on his feet.
Your math questions stink. X - 5 = -65 ? The
answer is -60, but three digits aren't acceptable.
America had a chance to vote in Dr. Ron paul, and instead they followed a false G-d, serial liar and basically Satan to in sheeple clothing. Well, all Empires eventually fall and it is time for China to be the next ruler.
Andy....not quite Midwest.
Then again, you have all those West Virginny characteristics...
huge downdraft today and yet no bear treats at robos.....
Sounds like Deliverance
*banjo playing*
You sure do have a puuuurty mouth.
I've been wandering around New Orleans for the past week. This place is incredibly dilapidated and worn down, but yet I have to say people here are more polite than anywhere out west that I've been. People say hello to each other in the streets and it's not even MG yet. But as for the job scene? It's brutally slow and close to non-existent, the poverty line here is way above what one might think, approaching the 60 to 70% of the population mark.
More evidence that Amerika is being "governmented" out of business.
I especially love the City Wage tax scheme in Pittsburgh and Philly. Neither has a self sustaining tax stream, so the thousands of workers from the burbs get to pay an outrageous wage withholding tax for the privelege of working within city limits. The ultimate in taxation without representation.
Don't know what it is today, but last time a relative complained that Philly was about 7 %.
I've worked in two cities like that, and resented every second.
When I got the chance to start my own business, I did so in a municipality with no local income tax. If they ever change that, I'll move the business again. Starve the monkeys.
May I suggest Antigua.
Anyone familiar with the short muini ETF SMB? What areas is it concentrated in?
always.read.prospectus.
particularly the fine print.
Let's see, about 10 years or so ago towns started collecting more taxes and fees associated with the inflating of the housing bubble, then they started spending like proverbial drunken sailors, then they started to raise more and more funds and taxes through increased appraisals, all the while cranking out 5-10% annual budget increases and spending every dime they could get their hands on, and borrowing the rest.
Yep, this will end well.
Bloated Muni payrolls and budgets now move to center stage. The biggest problem is the lifetime deluxe bennies and pensions that get promised, and the big cities that hire people at 25 and retire them by 50 (jacking up their base salary on the way out the door to increase the lifetime pension payout. Trying that stunt in the private sector would land you in jail.)
This leaves a mathematically broken equation where people work for 20-25 years, then retire on 80% of full comp for 25-50 years...or longer.
And, to top it all off, a lot of them are unionized against the rest of their communities.
The whole thing is rotten. Wait until a biggie goes down...watching you Chicago, Cook County, and IL... of course the entire State of CA might beat you to the punch.
I know here in Florida the housing bubble property tax windfall got the police/firefighters very large raises and better benefits and now that its gone they dont want to give any of it up. I think you may see some municipalities here have to file bankruptcy or something to reduce their wages some due to their union stuff. The state of Florida even though they are hurting some doesnt have the same problem because they dont pay their employees squat compared to the local municipalities in Florida.
If it weren't so damned bad it would be comical.The world, we, are concerned about Greece,Portugal, Spain, etc.........( % wise, and ratio of GDP to Debt, the US, & the U.K, are as bad,really worse).
If the US $ was not the Reserve Currency, it would already have been lights out....that's SOON to change.
May I point you all to this article I read about budgets being busted.
http://www.denverpost.com/news/ci_14303473
LOS ANGELES — The mayor of Los Angeles has ordered the immediate layoff of 1,000 city employees to help to balance the city's budget.
Mayor Antonio Villaraigosa (vee-ah-reye-GOH'-sah) took the action Thursday, after the City Council voted unanimously a day earlier to postpone any action on job cuts for 30 days while they explore other options.
Villaraigosa says his move will strengthen the city's credit rating and its long-term fiscal health.
City budget analyst Miguel Santana says the cuts are necessary because of the city's $208 million budget gap. He says delays will only result in bigger cuts later.
http://www.washingtonexaminer.com/nation/83597527.html
Don't look now. But even as the bank bailout is winding down, another huge bailout is starting, this time for the Social Security system. A report from the Congressional Budget Office shows that for the first time in 25 years, Social Security is taking in less in taxes than it is spending on benefits. Instead of helping to finance the rest of the government, as it has done for decades, our nation's biggest social program needs help from the Treasury to keep benefit checks from bouncing -- in other words, a taxpayer bailout.
http://finance.yahoo.com/focus-retirement/article/108747/next-in-line-fo...
I do not consider the interest on SS bonds to be income, when the government is in debt. It is more a matter of equivalent worth. That is, an exchange for real worth in regards to a labor rate. A promisary note, like a SS bond, is only worth what the face value pays. In this case it is more debt. The only real worth, true inflow, negotiated through income is tax revenue. Now if the SS Bond was based on Gold or some other commoditiy that was outside of Government currency debasement, it would be relevent. So the real comparison for SS outlay is payroll deductions versus outgoing payments. I foresee a shortfall in 2010.
Yes, this is important, because the reason why benefits will eventually be cut are directly related to the "robbing" of SS, and the failures of the politicians to take prudent action based on the demographic data and projections.
Another way to say this, is the faliure of the politicians, and the malinvestment by our government, will hurt a lot of retired people who now depend on SS.
The end result is bad. Either benefits will be directly cut, or the currency will be devalued to the same degree. Your reward for being taxed over all of those working years, you will be receiving less.
Mark Beck
Harrisburg has been in dire financial straits for more years than I can remember, and I once lived there, in a first floor apartment in a former mansion overlooking the great Susquehanna River. $300/month, and only got burglarized twice, while I worked in state government after graduating from law school. Went through a bit of a revitalization in the 80s, but the problems of a chronically poor population living among the improbable grandeur of classically designed monuments to state government have proved intractable. One of many, many towns in PA, especially river towns, cities and boroughs, in coal country, lumber country and in the southeast and southwest, which have relinguished their once busy trade and manufacturing districts to weeds and rats. Sad. All once flourished, now all but dead. The Second Depression is already in full swing once you leave the major population districts in Pa.
.......... like upstate New York.
Where abouts upstate? Me, Roc.
I'm waiting for Niagara Falls NY to try to sell the falls
Niagara Falls?? Slowly I turned, step by step...
Up the river as far as Wmspt all the industry is gone accept Prisons. Construction is at a standstill. Housing market is sleeping, farms are being sold, downtown storefronts are empty.
Fast Eddie and Barry have brought change I can believe in alright, I just don't know if I can survive it. Look for another round of foreclosures in Central Pennsylvania any minute.
Great description. Know that area well. Spent some of my childhood summers and recognized then it was in decline. However, you said "which have relinguished their once busy trade and manufacturing districts" Relinguished...really, more like squeezed out of them, if you ask me.
No problem. Time to go Amish.
Ah, but, the best "place" is where they live. I'm looking for raw land all the time, just wish the price would come down quicker before the "next act" really starts.
Don't forget, when one thinks clearly about it, the Amish are quite the anarchists.
Feb. 4 (Bloomberg) -- Nassim Nicholas Taleb, author of “The Black Swan,” said “every single human being” should bet U.S. Treasury bonds will decline, citing the policies of Federal Reserve Chairman Ben S. Bernanke and the Obama administration.
“We are worse-off today than we were last year. In the United States and in Europe, you have fewer people employed and a larger amount of debt.”
“Democracies can’t handle austerity measures very well,” Taleb added. “We’re going to have a severe problem.”
I hear you can buy an acre of land in Idaho for $2000. Time for some peace and quiet!
Not bad, but I've been around Idaho, and depending on where that is (and it's NOT in the Sun...), you better get your provisions delivered in 6-month intervals, and be handy as a shootist. (Quads, bipeds may be a problem, too...)
"and subsequently develop a plan to dig out of its hole. "
The author unwittingly points out the problem. Most people, when trapped in a hole, don't attempt to "dig" their way out. That just makes a bigger hole. Unfortunately, that's precisely what the politicians will end up doing and me and every other Pennsylvanian (that pays taxes) will end up paying for it.
As someone who lives in Harrisburg, I'm a bit suspect about Andy's having stopped here--it's Mid-Atlantic.
As to the post itself: yeah, it pretty much gets it. To be fair to Harrisburg, it is a small municipality (I think 40 or 50K) and like a lot of poor urban areas, it's the dumping ground for wealthier communities' problems (low-income housing for workers *regionally*, homeless shelters, halfway programs, etc.) A lot of the property is tax-exempt (state or federally owned) and the housing stock is old.
Even if you want to pretend the Harrisburgs of the world created all their own problems--and they didn't--they are tied around your neck.
can u school me on UK's debt problem?! expo se' expo se'! hahaha
High time to move Out of the big cities like Detroit , Atlanta ,
Chicago....
This is not going to end well gang...I said it in 2008, I'll say it again. You can't suddenly create property values out of thin air, no matter how high an appraisal you force upon business and residents.
MunicideMUNICIDE!!!!
From bloomberg article, "Harrisburg skipped more than $3.5 million in debt-service and swap payments last year, prompting draws on reserves and back-up payments by Dauphin County, where Harrisburg is located. The county has sued the city to recover its payments. "
Why o why does a Municipality need to ever buy Swaps?
Time to put honorary Pennsylvania superman Joe Biden to work setting up a new task force, ably assisted by Rep. Barney Frank, "Federal Guarantees for Municipal Bonds: A new path to stimulate the Minsky moment"
just move the Capitol to Johnstown where all the liquor tax is the only thing flooding that town for 70 years...
http://pittsburgh.about.com/b/2007/08/27/the.htm
Au contraire, in my lifetime I know of the flood of 1977:
"The death toll would reach 85, while property damages reached the $300 million mark"
Google it. I remember visiting it immediately afterwards, and then for many, many months, and when it rained months afterwards, people I wouldn't think would cower would go for high ground. One time I joined them, I've never trusted gov't officials even (especially) in the form of Army Corp of Engineers.
Oh, I almost forgot this:
"The 1977 flood was a blow to Johnstown's increasingly fragile economy. Many downtown firms damaged by the flood did not reopen or moved to the suburbs. Employment at Bethlehem Steel dropped by 4,000. Between 1970 and 1980, the city's population dropped from 42,221 to 34,221, a 19.4% decline, and the 1977 flood is a major reason why."
Me and a buddy went into a business partnership with an old childhood friend of his who would be one of the ones who would move out of Johnstown (to Kentucky), and we supplied a great portion of the Great Valley with.., umm, medicinal, ummm..., another time.
That was all before Murtha brought home the rancid bacon.
Considering every option eh? raising taxes, selling assets, applying for help from penn. Anyone notice anything missing? How about CUTTING THE WELFARE PROGRAMS and other spending and handouts!
The bloated state---ahem--employment rolls, it is the state Capitol afterall and therefore a haven for the work-challenged who have connections, was not mentioned either.
Every option?
How about getting rid of the Pa Liquor stores and the cozy contracts with scattered storage facilities that have milked this cow for a hundred years and paid union labor, pensions and healthcare that could be had for a third?
How about state employees getting real jobs or at least get acquainted with the real world?
"Altoona, for example, was determined to be under fiscal distress in December 1987--shortly after the enabling legislation was passed--and remains under state supervision to this day"
Is that because the clowns working at the state level are more capable than the clowns working at the city level?
All this is more joke. Nobody is accountable for anything anymore. Is harrisburg TBTF? Let's bail them out!
According to Marc Faber, were all doomed. He blames it on overpaid US government workers, the lurking certainty of tax increases, and the spectacular failure of state pension fund managers who bought assets at peak prices, got out at the bottom, and now face $2 trillion in unfunded liabilities. Here's Marc describing his outlook for the US. "Were Doomed, Were Doomed"
http://foxmuldar-conservative-thinker.blogspot.com/2010/01/fabers-take-on-us-debt-were-all-doomed.html
I know one thing, we must ban public employee unions.
Alot of munis got burned by these rate swaps...most are suing...JP fond of them. Lower property tax revenues follow soon to be and long delayed crashing prices. They have to balance budget, can't print. RuhRoh.
I got out of the muni game about 10 years ago. 1) It was boring me to tears, 2) I didn't like supporting socialism, and 3) corruption is rampant.
I'm not going to cry myself to sleep over a bunch of government morons running themselves into bankruptcy.
That said, many were sold a bill of goods by bankers, municipal consultants, bond lawyers, and lobbyists over scams like waste incineration (especially waste to energy) and multi-family housing. These do-good projects are there to take taxpayer money and pad the pockets of the strap-hangers listed above.
I remember one speech made by a bond lawyer at a conference over how great the multi-family housing market was. But his speech was not about how many poor or homeless were served. It was about how it put his kids through college and bought him a second house. All the liberal prattle about social justice and such is boob bait for bubbas (as Pat Moynihan said). It's cover so they can siphon money out of your pockets and into theirs.
Harrisburg, while no doubt complicit and foolish in this farce is also a victim of the muni bond oligarchy.