Today’s Wall Street Journal had a fascinating story in the ‘Money & Investing’ section of the paper about Harrisburg Pennsylvania and their major debt problems, in face the title of the article was “Bottom Falls Out of Debt-Ridden City”. Prior to 2008 cities were considered an excellent place to invest money for modest returns balanced by low risk. With the financial crisis that has changed, enough so that even Warren Buffet is reconsidering his investments in municipalities.
The story is saddening but also an excellent cautionary tale, when times are good improvements go up the list of things for a city to do, and that’s not necessarily wrong. However a city backing $350 million in debt for an incinerator while neglecting basic maintenance to the water pipes just reeks of poor planning. There is a downside to a good economy, and that’s the high risk of financial over-extension. Just like a household, a city must be careful to allocate resources only when the basics are thoroughly taken care of.