Meanwhile, revenues are starting to improve slightly. “We were able to get the voters to approve an additional 1 percent of sales tax, translating into $11 million that we didn’t have before,” says Lauchner. “And best of all, bankruptcy has allowed us to restructure our debt obligations. We’re able to make the debt-service payments.” Other advantages of Chapter 9 for Vallejo have included the ability to eliminate binding arbitration and minimum staffing levels in union contracts — “the stuff that’s never positive for a city, because you usually lose,” says Lauchner.
Harrisburg: Incinerating Cash
Dan Miller, controller of Pennsylvania’s capital city of Harrisburg, can relate to Lauchner’s experiences, although the outcome in his case isn’t what he had hoped for. He and other city leaders filed for bankruptcy protection in 2011, only to have a federal judge dismiss their petition. Miller is convinced bankruptcy is inevitable.
Harrisburg’s fiscal woes stem from a failed 1960s-era trash-to-energy incinerator project that burned up city coffers instead, leaving it more than $400 million in debt, or quadruple the annual budget. “We kept refinancing the incinerator every few years, but it kept eating up more and more cash,” says Miller, who in a sign of the times is running for mayor on a pro-bankruptcy platform. “We ended up owing more money on the incinerator than it was worth, even though its revenue now exceeds the operating expenses.”
Harrisburg first defaulted on the 2002-era Series A bonds backing the incinerator, and then defaulted on its general obligation bonds, which Miller says run about $12 million a year. As if these fiscal woes aren’t bad enough, the city confronts $180 million in unfunded health-care liabilities. “We need to be putting away $15 million to $18 million a year to fund these liabilities, but we can’t afford to,” Miller says.
Harrisburg is now mired with a 20 percent budget deficit, which city leaders hope to trim through yet another bond restructuring, one hinged to the sale of the incinerator and a separate deal to lease some city parking garages to an outside vendor. “The only way we’re making it now is by not paying our debt service,” Miller maintains. “We can’t do anything with our very generous union contracts because we’re under contract with the unions and they won’t budge. We can’t cut the film festival because it’s already cut. There’s just no more fat left. Bankruptcy is our best and only option.”
Jefferson County: Money Down the Drain
Bankruptcy was the only option left for Jefferson County, Ala., which filed for bankruptcy in November 2011, following the collapse of an agreement between county officials and investors to refinance $3.1 billion in sewer bonds. Like other municipalities under water, Jefferson County first slashed payrolls, facilities and services to make up for the budget shortfall, but the actions failed to stanch the red ink.