Harrisburg Goes Bankrupt

Harrisburg, Pennsylvania has filed for bankruptcy. This hardly comes as a surprise to even the most casual observers as it has teetered on the verge of insolvency for years. The Capitol city of Pennsylvania find itself in a fascinating paradox. It's not the stereotypical decaying rust belt city drowning in a tsunami of public pension obligations. In 2010 Forbes Magazine rated Harrisburg as the second best place in the country to raise a family. The Daily Beast web site ranked it in the top twenty recession proof metropolitan areas in the country. So what is wrong with Harrisburg? It made a bad bet more than four decades ago. In 1969 Harrisburg raised $12.5 million to build an incinerator to dispose of municipal waste. What they got was the mother of all cash burning machines that after two generation has found the facility an astounding $310 million in debt. Over those forty plus years the city has borrowed against that facility 11 times almost like a teenager with a Visa Card. When the facility was first proposed the city's fathers envisioned actually making money on their investment. Better would it have been had the city mothers taken in ironing to supplement the city's cash flow but the sins of the fathers have been visited upon their sons and their sons.

To get straight to the bottom line, something no one in that local government seems to have done, they made a bad investment It's not stretching the analogy too far to compare this debacle to Solyndra. In both cases the public made a bad bet on untried technology that was praised as the way lesser mortals would do once they became as enlightened as their political betters. The Harrisburg incinerator received national fanfare when it was first proposed. It was never just a municipal utility, similar to the waterworks or sewage disposal utilities. It had a politically correct aura as the solution to the proliferation of landfills which prior to global warming was generally thought to end life on this planet as we know it. It was a failure only a government could produce. Yes, much is made on MSNBC that only a big government could build a Hoover dam but ignored in that theorem is the corollary; only a big government could produce the debt crisis of 2008.

Fine you say, hindsight is 20/20 but some projects are too risky for the private sector to raise capital therefore government must intervene. In this case had Harrisburg waited for the private sector to raise funds it would have never been built and the city wouldn't be treading water in bankruptcy court. Suppose, a private company had contracted with the city to build and operate the facility. When the technical troubles that bedeviled the incinerator began to appear management would have formed two lines of vice presidents in charge of incinerators-one coming and one going. When all else failed the facility would have been either shutdown or sold off to someone who could fix it.

How do I know this? I know this because no private firm could borrow $310 million on a $12.5 million facility. Only government, by pledging its full faith and credit and therefore the obligation to tax its citizens to, as JFK would say, "to bear any burden; to pay any price" could prop up a failure for forty years.