The news is that Harrisburg has filed for bankruptcy.  While technically true that they have filed for bankruptcy, this may be shot down before it all begins.  The funniest part of this at the moment is that all the judges for this are in Tampa for a conference.  So hold your breath.

Remember, bankruptcy has not been far below the horizon here in the past.  The closest the city of Pittsburgh should have come to bankruptcy was in the early 1990’s just as Tom Murphy became mayor.  Yet the history is that the City of Bridgeport, CT had just before that time tried to file bankruptcy but was denied by a federal court to even enter bankruptcy.  Municipal (Chapter 9) bankruptcy is not like bankruptcy for you and me in lots of ways.  US constitutional issues prevent a judge from exerting many of the powers over a state entity the same way might happen in recievership for an individual or company.

In Bridgeport’s case the court ruled that the city was not really broke enough to file for bankruptcy, i.e that it had the fiscal capacity to tax or borrow its way to meet its obligations. Unlike other bankruptcies which really look at assets and liabilities, Chapter 9 is more about cash and the fiscal capacity to raise cash.  Most public assets are not going to be considered for sale or liquidation no matter, so there is no risk of the mayor’s chair being carted off to a flea market.

The thing is that while I believe the City of Pittsburgh was in a far worse shape than Bridgeport was at the time, that precedent was clearly the biggest thing on the mind of city lawyers who likely advised a bankruptcy filing would not go forward.  I personally bet they were wrong on that and that Pittsburgh was not in as good shape as Bridgeport was and well over the line of insolvency in a public sense.  There is even a school of thought that says if Bridgeport just waited another year before filing its fiscal condition would have been so bad that the court would have had no choice but to let the filing go forward.

Still I bet Bridgeport’s aborted bankruptcy is the only thing that kept the Murphy administration from filing for bankruptcy right as they took office when they were told the city was about to go cash zero. Prevented from bankruptcy all sorts of even worse things happened.  The result was that over the subsequent decade city in succession ’sold’ or liquidated the water department into the water authority (long story there), the city’s debt ballooned,  tax liens sold off to a third party without much concern for city of Pittsburgh development and no significant increase (Pension bonds were a wash I would say.. at best) in pension funding would leave us where we are today.   So today we have more debt, more pension liability, no direct control of the water system (think of all the problems that has caused) and had much of a decade of neighborhood economic development arrested because it was held hostage by a wall street company that couldnt spell in Latin.

Then there is this logic people say the Commonwealth of Pennsylvania must ‘approve’ any bankruptcy filing.  Also technically true in the legal sense.  In the real world sense it is not so important.  The lawyers might argue, but consider a few things.  In Pennsylvania the state approval for letting a federal bankruptcy filing go forward is mostly embedded in the Act 47 law and process.  There has been municipal bankruptcy in Pennsylvania, even one  recently in the case of Westfall Township.  Did Westfall get permmission to file for banktruptcy?   I would argue it didn’t in that an Act 47 process only began after they filed and had a bankruptcy proceeding move forward. The state went along, but it was kind of after the fact.  And in one of the stranger acts of jurisprudence.. some folks may remember the monster AHERF bankruptcy that still lives on in shaping the region’s state’s health care system.  AHERF, even though it was not a municipality, was a Chapter 9 bankruptcy.  Does not quite make sense to me, but I think it was just too big and too complex to really fit into a Chater 11.

In the bigger sense it does not matter if the state really approves a major bankruptcy or not.  If bills go unpaid, or say bond payments don’t go out.  Bad things happen and at some point someone would be forced to do something.  The state would have little choice to ‘approve’ a bankruptcy, or a judge would find some way to rule that a filing could go forward.

Also unmentioned in the article is the story of Vallejo, California and its bankruptcy that is just about to come out of.  That also is a case where I have argued the fundamental finances there are far better than they were (or are) here.   Go figure and again think about all the victory signs last month when the state accepted the while pension accounting scheme. Is Vallejo a model for what may happen in Harrisburg?   Probably not just yet.

So what happens now?  My guess is that when the judges get back from Tampa and have a hearing on any of this they are likely to push back and say no… no filing for you.   Sort of like the soup guy on Seinfeld.  Federal judges are not going to want to get into what is, on top of everything else, a political circus in the city of Harrisburg.   They will tell them they are not there to settle the city’s political problems, whether or not that is the verbiage of any actual ruling who knows.  So a bankruptcy may happen… but I bet it is not right now.

Still,  I am surprised the Commonwealth let this all get this far already.  There are consequences across the state for such financial miasma in any one municipality, let alone in the state capital.