Harrisburg in default

John Dimsdale Nov 8, 2011

Harrisburg in default

John Dimsdale Nov 8, 2011

Kai Ryssdal: The story of the moment out of Pennsylvania is the abuse scandal at Penn State, and whether or not Joe Paterno’s going to be allowed to finish out the season — his 46th.

But as long as Paterno’s lasted, this year’s lasting story out of the Keystone State is economic. Harrisburg, the state capital, is in default. It owes bondholders and creditors more than $300 million. That’s six times the city’s annual budget. How it got there is a convoluted tale of bad bets that the city’s 48,000 residents are paying off.

Our Washington bureau chief John Dimsdale went for a look see.

John Dimsdale: Downtown Harrisburg sits on the eastern banks of the wide Susquehanna River in the center of Pennsylvania. The long river-front offers all sorts of green space and recreation. In the leafy city neighborhoods the houses are old and sturdy. People say life here is affordable.

Josie Vitale: I love this house. I still have my wedding decorations up. I can’t bear to take them down. You know we got married here.

Josie Vitale has lived in her renovated townhouse near the river for 7 years. A year ago, she landed a better job selling medical devices. But it’s in Allentown, an hour and a half away. She put up a for sale sign in front of the townhouse. It’s still there.

Vitale: Nobody wants to buy here. It’s like this overwhelming feeling of uncertainty. You don’t know what’s gonna happen.

She’s about to take down the For Sale sign and resign herself to the long-distance commute. It doesn’t take long for conversations in Harrisburg to turn to concerns over crime and potholes. So far the city isn’t replacing retiring police or firefighters, and overtime and police training budgets took a hit. Last spring, a community group started foot patrols to try to cut down on muggings, robberies and gangs. The city is overdue on some big payments to bond-holders. And residents who already pay about 18 percent of the property’s value in taxes, worry those taxes will have to go up to foot the bill.

Lunch time at the Italian bistro Mangia Qui in the shadow of Pennsylvania’s hundred year old capitol building. So far, state workers keep the place busy. So much so, the three owners just expanded. But now, they worry about future business. Qui Qui Musara is partner and chef.

Qui Qui Musara: You can’t just say I’m done, I’m leaving because there’s nobody to pass it on to. It’s like you’re at the casino. You have to keep spending and betting on the gamble that one day it will turn back around. And it really should.

But right now the city is broke and faces a state takeover of its finances. People here are afraid a state administrator would raise their taxes and sell the few assets the city has left like parking lots and the incinerator — all to pay back the city’s many creditors, who would be first in line.

Staci Basore, co-owner of the restaurant, says that’s not fair.

Staci Basore: It seems to me the state is working in the best interest of the bondholders. And it’s a degree of corporate welfare. These people too should take a hit. They invested, they gambled. Obviously they should have gotten their money back but the bottom line is everyone is suffering and you can’t get — I’m not certain where else these funds are going to come from.

The other option is for the city to declare bankruptcy. A bankruptcy judge could forgive some of the city’s debts and spread the pain among all stakeholders. Community groups are pushing that solution and are turning to the Internet.

Tara Leo Auchey started a blog called Today’s the Day Harrisburg.

Tara Leo Auchey: It became a place where we post meetings, post information. It’s a place where city residents can go and try to find out what’s going on.

But even with the cyberspace support, blogger and concert promoter Mike Van Jura says it’s getting harder to convince his audiences that Harrisburg is safe enough for nightlife.

Mike Van Jura: All I want to do is run a fun profitable business, have people want to come into the city. Enjoy what we have to offer. Not have to pay exorbitant tax rates and be able to walk from my car to my house without being robbed. That’s not a lot to ask. Not in the capital of Pennsylvania.

A federal judge will hear arguments on the city council’s request for bankruptcy protection beginning November 23rd. That’s also the deadline for a state decision on taking over the city’s finances.

In Harrisburg, I’m John Dimsdale for Marketplace.

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