Bankruptcy may just be the start of Harrisburg's headaches

Even if it’s legal (and it’s not certain that it is), Harrisburg, Pa.’s, decision to file for bankruptcy protection is certain to be a long, arduous and costly process, experts say.

That’s why so few municipalities have chosen what could be a scorched-earth option for their credit rating since the law was enacted in 1937, after the Great Depression.

“The experience that many cities have had in Chapter 9 is not a pleasant one,” said Paul Maco, a partner at the law firm Vinson & Elkins and a former director the office of municipal securities at the U.S. Securities and Exchange Commission. “It tends to be much more drawn out and expensive than they may have at first thought. Essentially, there’s a lot to reveal itself here.”

Indeed, experts say that filing for bankruptcy protection under Chapter 9 should be a last resort for a cash-strapped municipality because doing so is very expensive, and can be fatal to the general reputation of a community and its credit rating. The lower a city’s credit rating goes, the higher its borrowing costs will rise.

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