PITTSBURGH City weighs bankruptcy protection over budget shortfall

Pittsburgh faces a budget shortfall of $40 million to $50 million this year.
PITTSBURGH (AP) -- Although Pittsburgh Mayor Tom Murphy says bankruptcy is still an option for the city if new revenue cannot be raised, financial analysts say that actually reaching the level of municipal insolvency is a rarity.
"If a major municipality waltzes into bankruptcy court, it's a very big deal," said Robert Strauss, professor of economics and public policy at Carnegie Mellon University.
Bridgeport, Conn., and Camden, N.J., are the only sizable cities that have filed for bankruptcy in the past quarter century, and neither was granted federal protection.
Threatened, never filed
Cleveland and New York in the 1970s, and Philadelphia a decade ago, threatened bankruptcy, but never filed petitions.
A dozen or so small towns and villages also have filed for bankruptcy.
Shenandoah, a borough of 5,600 in Schuylkill County, remains the only place in Pennsylvania to do so recently, and its 1988 case was dismissed. The borough sought state help under Act 47, which Mayor Murphy has said remains an option for Pittsburgh.
Being granted Act 47 status under the state's Financially Distressed Municipalities Act, which allows bankruptcy for municipalities, would involve a state takeover of the city, allowing the state to renegotiate contracts.
Budget shortfall
Pittsburgh faces a projected budget shortfall of $40 million to $50 million in its $386 million budget this year, an amount that could double in the next one to two years.
Murphy is seeking approval from the Legislature to raise taxes, including the occupation tax for people commuting to the city for work. Suburban legislators have opposed such an increase.
Some specialists say bankruptcy is not even the right word to use, whether coming from Murphy or from the authors of numerous studies that suggest the city could face insolvency.
"That's stupid," said John Mikesell, a government finance professor at Indiana University in Bloomington, Ind. "The city's going to remain a 'going concern.' It's a geographic monopoly. It's going to be the city of Pittsburgh. ... There are streets to take care of, fire services to provide, police to operate. It's going to be done."
The city still has the ability to raise property taxes, along with parking and license fees, although the mayor has said putting undue fiscal pressure on city residents would create an exodus and dig an even deeper hole for Pittsburgh.
Enough to bargain with
No one denies that the city's financial plight is serious, and even though the chances are slim, the threat of bankruptcy in some cases is enough to bargain with.
Camden, N.J., filed for bankruptcy in 1999 in an effort to get help from the state. The case was subsequently dismissed when the state stepped in.
"They used that to put pressure on the government to provide financing," said Jim Spiotto, who chairs the National Association of Bond Lawyers' bankruptcy committee. "Sometimes the threat gets you more than the reality."