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Josh Brown: Bankruptcy 'not a pleasure cruise' for municipalities

Joshua Brown of Fusion Analytics.

Jeremy Hobson: Let's get to Harrisburg, Pennsylvania, which says it is going to file for bankruptcy protection.

Josh Brown of Fusion Analytics joins us now live from New York as he does every Wednesday to talk about this. Hi, Josh.

Josh Brown: Good morning.

Hobson: So how significant is this? And are more bankruptcies like this for cities and states on the way?

Brown: I think what Harrisburg has in common with some other municipalities is that a lot of them have taken on these massive projects that in 2007 maybe were good ideas, but right now they just can't pay for, so it's significant for those types of parts of the country.

Hobson: Who gets hurt by a municipal bankruptcy?

Brown: A lot of people do. First of all, the creditors get asked to take a hair cut, secondly, tax payers are asked to kick in more. In Harrisburg, for example, they're already proposing a one percent sales tax, so it's not a pleasure cruise for anyone.

Hobson: So maybe some higher taxes down the road. Are other places around the country that are sort of teetering, are those really likely to be affected by a place like Harrisburg, Pennsylvania?

Brown: Absolutely. It makes municipal bonds harder to insure, it makes creditors demand a higher rate to lend them money. So if you at a place like Illinois for example -- it's a very big concern. Illinois, the average family share of the state debt is $78,000. So you've got these kind of issues scattered around the country.

Hobson: Josh Brown of Fusion Analytics, thanks so much as always.

Brown: Thank you.

Josh Brown is a New York City-based financial adviser at Fusion Analytics. He helps people invest and manage portfolios for them. Josh's clients range from individuals to corporations to retirement plans to charitable foundations. He is also the author of The Reformed Broker, one of the top 10 financial blogs in the United States.

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