Harrisburg is broke. Decades of mismanagement have caused economic malaise and spiraling debt in Pennsylvania’s capital. And two weeks ago, David Unkovic, the man who was appointed to fix all of it, resigned in a rage. He is now nowhere to be found. Unkovic hoped to unite the city behind a plan of debt reduction through shared sacrifice, but met with nothing but disagreement. We’ve seen similar struggles play out time and again. Indeed, Harrisburg’s story is indicative of our nation’s broader inability to cooperate on issues of debt reduction.
The Harrisburg Case
The city’s problems started with a massive, broken incinerator. The adminstration hoped to turn earn over a billion dollars in revenue by serving as a centralized burning location for all of Pennsylvania’s garbage. Elected officials assured voters that this project could morph a municipal expense – garbage disposal – into a profitable product – electricity. But problems ensued from the start. The incinerator broke down regularly, and was later closed by the US Environmental Protection Agency for breaches of regulation. Instead of simply accepting these losses, Mayor Stephen Reed decided to double down. In 2003, he ordered a retrofit of the entire facility. Poor management and a shocking lack of contractual oversight meant that the project continued to bleed cash.
The result was that by 2011, Harrisburg, a city of less than 50,000, had amassed a public debt in excess of $300 million, giving it the largest debt-per-capita ratio of any U.S. city. Voters tossed out Mayor Reed, and the new city government drafted a plan for municipal default. The state government of Pennsylvania, however, had a slightly different idea.
Enter David Unkovic, a mild-mannered, bowtie-wearing attorney. Unkovic, a municipal bond expert, had never wanted power. However, when he was appointed by Governor Tom Corbett to recommend and implement a plan for debt reduction in Harrisburg; he hoped to use his knowledge of public finance for the good of his home state’s capital.
Team of Rivals?
Unkovic presented a 200-page plan to the community, calling on Harrisburg to increase taxes, cut union benefits, and ask creditors to take a loss. Knowing that austerity could be unpopular, Unkovic stressed the need for cooperation. He announced from his first day in office that Harrisburg’s fiscal problem could only be solved if each of the groups of players cooperated fully and shared in the sacrifice.
Instead of unity, however, Unkovic’s plan was met with division and general aversion towards cuts. Everyone from city councilmen to bondholders denounced the plan; unions refused to accept the cuts demanded of them. Meanwhile, the Harrisburg mayor and controller, rather than cooperating to reduce the debt, spent much of their time and effort suing each other. One group of citizens, outraged that a technocrat had been appointed to run an American city, filed a lawsuit claiming that Unkovic’s appointment was unconstitutional.
Unkovic’s naive hope that the residents of Harrisburg could cooperate and share losses slowly gave way to cynicism. At a final press conference, he left his diplomatic attitude behind, calling for a comprehensive investigation of the incinerator project and laying blame on a lobbyist, a state senator, and the former mayor. Two days later, on March 30, Unkovic took a single piece of stationary and scrawled out this letter:
I have done my best to use my powers as receiver to bring fiscal stability to the city of Harrisburg. However, I find myself in an untenable position in the political and ethical crosswinds and am no longer in a position to effectuate a solution.
Unkovic’s resignation was completely unexpected. No one in the media has heard of his whereabouts for the past two weeks. Unkovic’s position remains vacant.
Unkovic was a first-class professional; his appointment should have brought an opportunity to reshape Harrisburg for the better. But the refusal of all important stakeholder groups to cooperate drove him to the brink of madness.
In 2010, Meredith Whitney, a Wall Street analyst who famously predicted the 2008 financial crisis, turned her gaze to municipal finance. Citing the trillion-dollar gap between what the state and local governments owe retired workers and the money they have to pay them, Whitney said that the next few years could witness “fifty to a hundred” defaults of US cities. Harrisburg is a reminder of that fear, and the reality that our governments are as addicted to debt as we are.
David Unkovic’s plan failed because of key stakeholders’ rejection of compromise, even in the face of an uncontrolled debt spiral. This political paralysis is evident at all levels of government in the United States. The broader failure of the Congressional “supercommittee” to come to an agreement on deficit reduction is an alarmingly similar national parallel.
This publication has argued before that technocracy, and the promise of experts removed from political battles, has gained appeal in the face of complex global economic issues. Harrisburg’s story makes clear, however, that it will take much more than technical prowess for America to face the problem of growing national debt. It will require cooperation at all levels of American society, and deep commitment on the part of all stakeholder groups. That’s something that no single expert can ever give us.