Harrisburg, PA Fiscal Recovery Plan Rejected… Again

Earlier this week the Harrisburg City Council rejected Mayor Linda Thompson’s fiscal recovery plan on a 4-3 vote for the second time in two months. This decision leaves Mayor Thompson with the unfortunate task of finding some other way to address the city’s $300 million debt, which is five times its general fund budget. Yesterday she told reporters that the City Council decision placed the city in “uncharted waters.”

Uncharted waters sounds pretty accurate, Bloomberg reports:

The council’s move may worsen fiscal strains if the state withholds aid. The vote also may make it more difficult to raise $7.5 million by leasing municipal land to the Harrisburg Parking Authority…

Harrisburg’s financial crisis arose because it guaranteed bonds that financed improvements to a municipal incinerator that hasn’t generated enough revenue to service the debt. Last year, the city entered Pennsylvania’s Act 47 aid program for distressed cities, only to see the council in July reject plans down up for it by consultants. The program is designed to help communities stave off bankruptcy.

The city is barred from seeking bankruptcy court protection until July, and [Governor] Corbett, a Republican, said last week that the council’s failure to act would increase the odds that the Legislature will move to take control of city finances.

Gov. Corbett recently wrote a letter to Mayor Thompson where he offered to provide more than $15 million in state funds if an acceptable fiscal recovery plan was passed, with grants for city sewers and the maligned incinerator project. Gov. Corbett also included the following strong words, as reported by the Pittsburgh Post-Gazette:

If there is no approved plan at this point, then the city is likely to become mired in litigation and financial chaos. If the latter occurs, the commonwealth will not bail out the city. Indeed, if the city continues down the path of irresponsible economic decision-making, it is probable that legislative action will result in the city losing control of its ability to make such decisions.

Harrisburg’s fiscal stress is nothing new. However city officials’ commitment to spurning solutions that would enable privatization merits special recognition because they may ultimately force state policymakers to intervene and make the tough choices for them.

If (and when) Pennsylvania state policymakers do take control of Harrisburg’s books they should apply the “Yellow Pages test,” which means that if a service can be found in the Yellow Pages of a phone book the government should consider buying it rather than using taxpayer dollars to hire and manage public employees to deliver it. The Yellow Pages test is a proven reform strategy for local governments.

After they’re done righting that ship state officials should apply the same logic to state government. A recent Reason Foundation study, published in collaboration with the Commonwealth Foundation, entitled Privatizing Yellow Pages Government applies the Yellow Pages test to a comprehensive range of state government services. (Pro tip: start with privatizing ABC stores and leasing the Pennsylvania Turnpike.)

For more on local government privatization, see Reason Foundation’s Privatization 101: Separating fact from fiction, privatization trends and the services that should be privatized by my colleague Leonard Gilroy.