Is Harrisburg's Nightmare America's Future?

The city of Harrisburg is Ground Zero for America's municipal debt crisis.

Pennsylvania's capital city has liabilities estimated at $610 million, which is nearly 10 times its annual budget. The city is so deep in the red that last year it attempted to file for bankruptcy. Reckless spending did more than ruin Harrisburg's balance sheet; it crowded out private industry and distracted from the city's core functions. Today, Harrisburg is a dangerous, poverty-stricken city, with failing schools and a shrinking population.

Harrisburg's fiscal nightmare may be a harbinger of things to come for American cities. In the mid-'90s, local governments embarked on a spending binge, bringing total municipal debt in the United States to more than $2.8 trillion. Along with Harrisburg, Jefferson County, Alabama, Vallejo, California, and Central Falls, Rhode Island have filed for bankruptcy in the past few years. Several more cities are on the brink of default, largely thanks to taxpayer-financed stadiums, museums, housing, commercial complexes, other misconceived economic development projects, and runaway public sector salaries, pensions, and benefit packages.

Few cities can top Harrisburg's recklessness when it comes to spending and borrowing. Mayor Stephen R. Reed had almost complete control over the municipal government during his 28 years in office (1982-2010), and he bears most of the responsibility for Harrisburg's financial ruin. Reed believed that with enough borrowing and spending he could transform his small city on the Susquehanna into a regional center for business and tourism.

Trusting the private sector is "letting external factors, forces, prejudices, misperceptions, bad perceptions, all those things determine the future of your town," Reed said in a 2010 interview. "We'll determine the future of our city."

Harrisburg always went a step farther than other cities. Many municipal governments waste taxpayer money on subsidizing hotels and convention centers. Harrisburg outright bought a hotel in 1993 to prevent it from going out of business. (Today, that same hotel is facing foreclosure.) Many cities waste taxpayer money on sporting arenas. Harrisburg not only built a baseball stadium for a AA baseball team, in 1995 the city bought the team as well to prevent it from decamping for Springfield, Massachusetts.

Many cities waste taxpayer money on museums and cultural institutions. Mayor Reed wanted to create five of his own museums, including one all about life on the American frontier. He spent millions of city dollars buying artifacts for the museum's collection, including Virgil Earp's watch and badge, a Seventh Cavalry telescope, and a Vampire Hunter's Set.

"Much as Washington, D.C. draws millions of people to the city each year with its many museums, or New York City, that's what Steve Reed's vision for Harrisburg was," says lobbyist Randy King, who was Reed's communications director for 18 years.

About 60 percent of Harrisburg students are failing, according to Pennsylvania's statewide achievement exams. After Mayor Reed took control of the Harrisburg School District in 2001, he addressed this problem the only way he knew how: building more empty facades. The Harrisburg School District went on a school construction spending spree, racking up $270 million in debt, which is more than two and a half times Pennsylvania's average school debt per capita.

Reed's costliest venture was an attempt to make money by burning garbage. Harrisburg's incinerator was built in 1972, but it was a lemon from the beginning. Although there's no shortage of cheap landfill in central Pennsylvania, Harrisburg borrowed $125 million to renovate the plant. Reed hired an incompetent contractor and then neglected to get insurance on the job. Today, Harrisburg is liable for $310 million in debt on the incinerator alone.

Last year, a state judge ruled Harrisburg's bankruptcy filing illegal under state law. Now the city's finances are under the control of a state-appointed receiver. Harrisburg's tax base is so depleted there's no way it can make good on its debt. Ultimately state and county taxpayers will bear the burden of Harrisburg's mistakes.

"The economic mess is coming to an ugly end," says designer and business owner Jason Smith, who ran for mayor against Reed in 2005. "And that's a wonderful step forward for Harrisburg. I know that sounds terrible, but we can't live in delusion for ever, and at some point you have to say what is the reality."

Shot, edited, written, and produced by Jim Epstein, who also narrates.

Approximately 7 minutes.

Go to Reason.tv for downloadable versions of this video and subscribe to Reason.tv's YouTube Channel to receive automatic updates when new material goes live.