Detroit going bust may have done a great service for the world and also may end up saving Lancaster County Solid Waste Management Authority (LCSWMA) from a disastrous investment for it and the local citizenry.
There has been a cruel and spurious notion that, no matter how much municipalities (and sovereign states) owed and how little their ability to pay, bonds from municipalities would always be sound because of their taxing power.
Therefor cities, such as Detroit and Harrisburg, have been used as feeding troughs by bankers, attorneys, consultants and the rest of the predators of the business world.
They get richer and richer. The benighted citizenry in its massive ignorance ends up paying the bill.
And the gap widens between the top 1% and the rest.
With the massive Detroit bankruptcy and a few smaller ones recently, the notion that all municipal bonds are equal has now been put to the lie. Lenders will have to assume responsibility for their folly. Rating agencies may be held liable. The feeding troughs may not cease to exist, but they will be less frequent.
An example at point is the highly questionable offer of the LCSWMA to spend all of its $100 million dollar plus net worth and put at risk more than the $6 million it earns each year to expend almost $200 million for the long trouble plagued Harrisburg incinerator and its adjoining mountains of ash … dating back to long before there were environmental regulations and regulators and containing Lord knows how much toxic waste. (The LCSWMA originally valued the Harrisburg incinerator at less than $50 million.)
Moreover, it has apparently failed to engage qualified third parties to perform a financial Feasibility Study or an Environmental Assessment.
Such a risky undertaking could not only bankrupt what is now an authority with over a hundred million dollars in net worth and an income of over $6 million a year… if the Authority weren’t in a position to raise tipping rates and as a result trash collections fees for Lancaster County.
Governor Tom Corbett has been proactive in trying to protect bond lenders from losses by resisting Harrisburg going the bankruptcy and reorganization route. Plucking the solvent Lancaster Authority has been an essential part of his plan. With the Detroit precedent, he may no longer be able to prevent bankruptcy court jurisdiction and thus the setting of a market rather than the highly inflated price for the Harrisburg incinerator.
It is well understood that Newslanc wants Tom Corbett out of office. Fair enough, politics is politics. But legislation designed to stop Harrisburg from rushing into bankruptcy was passed by the legislature and Corbett signed it.
Allowing municipalities to rush willy nilly into bankruptcy could significantly harm future municipal governments and thus taxpayers when future lenders demand higher interest rates for loans to build decaying infrastructure. Paying what you owe is morally right and, under the right conditions, so is bankruptcy.