Times have been tough for everyone since the financial crisis nearly five years ago, and inescapable debt has become a fact of life for many people, businesses and even municipalities. Pennsylvania’s capital city of Harrisburg is currently under the specter of bankruptcy.
The governor plans to sign a bill extending a bankruptcy filing ban, currently in place for the beleaguered city, until November 30, 2012. This is expected to give the city enough time to develop plans to resolve the mounting debt crisis. While bankruptcy may still be in the cards, it at least gives the city time to plan and prepare for issues involved in the city's bankruptcy such as asset distribution and contract renegotiation.
Municipal bankruptcy is no walk in the park, and it is not the "clean slate" that many may think it is. Consultants suggest that a Harrisburg bankruptcy might raise the costs of borrowing for the Pennsylvania state government, which would have a ripple effect on cities and counties all across the state.
Many people know the feeling of looking at a balance sheet and failing to find a way out of a financial crisis. Harrisburg currently has a budget of $57.9 million but intake of only $45.2 million, creating a stunning deficit of $12.7 million. This is largely the result of a failed trash-to-energy incinerator purchase, which isn't generating as much revenue as planned. However, creditors' unwillingness to lend also plays a part in the urgency of the situation.
Difficulties involved in municipal bankruptcy filing
Harrisburg has filed for bankruptcy in the past, but it has been denied because a court felt that the city had not tried hard enough to put its fiscal house in order. Pennsylvania cities like Scranton face similar situations. In June 2012, Stockton, CA, a city of just under 300,000, became the largest-ever U.S. city to file for Chapter 9 bankruptcy. With the bankruptcy ban extended for another five months, Harrisburg hopes to avoid the California city's fate.
If you're worried about bankruptcy, don't feel like you're alone. Plenty of cities and large organizations also suffer from too much debt and not enough funds. If you are considering bankruptcy as a solution for your financial issues, contact Harold Shepley and Associates today. We can help you develop a plan to get you back on your feet.