Gov. Rendell’s recent state bailout of the city of Harrisburg has brought attention to the capital city’s fiscal mismanagement. With millions in debt payments and an enormous pension obligation, Harrisburg’s financial woes run deep-and it is likely just the first in a long line of Pennsylvania cities to contemplate bankruptcy.
Harrisburg’s missteps are the stuff of terrific humorous anecdotes. The list of fiscal follies includes $7 million to purchase artifacts for a failed Wild West Museum, purchasing a minor league baseball team, and retrofitting the toxic Harrisburg incinerator, on which the city owes $288 million.
But the problems of a city with a population under 50,000 have serious, widespread implications. Investors have been scared away from a region supporting a half-million residents. Harrisburg’s woes are emblematic of other cities across Pennsylvania, and state taxpayers have been forced to foot the bill for the city’s mismanagement, even as federal taxpayers support the state’s overspending.
Other Pennsylvania cities, including Philadelphia, Pittsburgh, Erie, and Allentown, are strapped with similar challenges. Public employee pay, pensions, and health care costs are major contributors to the fiscal mess. City governments are trapped by a host of labor contracts mandating rising wages regardless of falling tax revenues, as private sector jobs disappear. The result is an overextended government forced to keep spending while its tax base slowly matriculates to areas with lower tax burdens.
All across the state, cities have gotten involved in services outside the proper role of government. Local governments often own and operate facilities that should be found in the yellow pages, like parking garages, golf courses, and hotels.
Another common problem epitomized by Harrisburg is "economic development" spending to entice new businesses. The capital city attempted to revitalize itself by instituting a downtown improvement tax and offering subsidies to attract development. While downtown has seen new bars and restaurants, Harrisburg continues to lose residents.
The truth is, the city is hemorrhaging residents not because of a lack of night clubs, hip restaurants, or parks, but, rather, high property taxes and horrendous public schools. The Harrisburg school district has the highest property taxes in the region, spends almost $18,000 per pupil, and yet only one-third of 11th grade students are proficient in either reading or math.
Finally, corruption and mismanagement plague Harrisburg. The city has a long record of ill-advised hiring and firings, and an unfortunate tendency toward bad consulting deals. Mayor Linda Thompson now wants to hire a Chicago advisor at a cost of $800,000 to help the city figure out how to manage its finances. And there have been a number of shady land deals-like the millions Harrisburg borrowed on behalf of Capitol View Commerce Center developer David Dodd, who last year filed for bankruptcy.
Despite all the poor decision making and mismanagement, Gov. Rendell is now bailing out the beleaguered city, at taxpayer expense. The ramifications of this decision are immense. Pennsylvania is setting a precedent for other bankrupt cities, and the message is simple: you can spend your way into bankruptcy without any negative consequences.
Many wonder if there is any way out of the city’s self-inflicted fiscal calamity. The answer is yes, and it can be summed up in two words: cut spending. Cities can cut their budgets through privatization or long-term leases, through reforming public sector pay and pensions, and by reducing wasteful and bloated government programs.
For instance, selling or leasing City Island, the parking garages and parking meters would provide Harrisburg with much-needed cash and allow the city to refocus on the essential roles of government. Spending cuts begin with renegotiating union and employee contracts, and the city should contract with outside providers for services like waste management, sewer, and water.
Pennsylvania cities are seeding their own destruction with spendthrift policies, causing businesses and residents to flee from urban centers. Erie, Pittsburgh, Allentown, and the like will soon find themselves in the same situation as Harrisburg if they refuse to address their bloated budgets. These cities are capable of saving themselves through fiscal restraint, and must resist every temptation to dump the consequences of their poor decision making on others who live under responsible local governments.
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Elizabeth Stelle is a Research Associate with the Commonwealth Foundation (www.CommonwealthFoundation.org), an independent, nonprofit public policy research and educational institute based in Harrisburg.