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Editorial: Bankruptcy moratorium was right move for Harrisburg

Many, especially in Harrisburg, questioned why the General Assembly took the bankruptcy option away from struggling third-class cities in 2011 and then extended the ban until Nov. 30, 2012.

Bankruptcy status can be a powerful tool in dealing with creditors, after all.

Now that Harrisburg apparently is close to signing major asset deals worth millions of dollars, however, the wisdom of those moves is more clear: They forced the city to work on its problems constructively. As we've noted numerous times, bankruptcy protection, in reality, in the end protects no one.

According to receiver William Lynch, the sale of the incinerator and a lease of the city's parking system should be done by early next year. Together, those deals will bring in considerably more than if the city had relinquished them in a bankruptcy fire sale. In addition, the city council agreed to a one-year doubling of the earned income tax.

None of this would be possible if the city had simply thrown in the towel and taken the bankruptcy route.

While it is regrettable that it's taken so long to get to this point, the long-term outcome for Harrisburg and surrounding communities should be better than if it had simply shed its debt. For one thing, in new hands, the probability is high that the troubled incinerator will finally become a productive regional asset. For another, Harrisburg's parking assets will return to the city some day instead of being lost forever.

Just as important, other Pennsylvania municipalities should find themselves in a healthier position than if the city had capitulated to its problems.

When the capital city's financial woes came home to roost in 2010, speculation on how a Harrisburg debt default could drag down the commonwealth was widespread, though it was difficult to see how one city's actions could mar the prospects of another or even the state as a whole.

But as in so many areas, when it comes to the relationship between the state and its municipalities, Pennsylvania is different. The concept of "local government" here lends itself to a "sink or swim" mentality absent in many other states. As one independent bond analyst said as recently as September, Pennsylvania's reluctance to intervene and force municipalities to meet their bond obligations "impugns" credit worthiness statewide and makes Pennsylvania a greater risk for investors. That's bad for taxpayers and bad for business.

Looking at the Harrisburg situation from the inside, though, even the relatively modest step of a bankruptcy moratorium was a pretty drastic move for the legislature. As we see now, it was a step in the right direction.

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