City Of Brotherly Love Or Zombietown? Philadelphia’s Financial Collapse

I realize everyone is thinking about terrorism right now. But a financial collapse is arguably also a national security threat. Such a crisis could even result in injury and death—as anyone who has watched the riots in Greece realizes. So readers need to be aware that Bloomberg reports the governor of Philadelphia met with a small select group of potential investors yesterday, at a meeting from which the media and the public were banned.

While the conference started yesterday, it is to continue to today with a shopping trip of sorts;

“Tours of city assets are set for the second day of the conference, including the Philadelphia Gas Works, the largest municipally owned natural-gas utility in the U.S. The city plans to hire a broker to steer the sale of the system, which may fetch as much as $496 million, according to Lazard Ltd. (LAZ).”

I have to wonder how realistic they are being to name a $496 million price tag, but even if got a half billion in dollars for it, how much difference can that make in city with “$8.75 billion in outstanding debt as of September”? Also, they claim the city’s pension is funded at less than half of what it needs. But Bloomberg doesn’t say what growth assumptions are being used to justify that calculation. It is likely that the pension is even worse off than that.

Additionally, the school district is also carrying more debt than it can pay back. Yet the school’s problems are not even being addressed.

“Facing a $304 million deficit, school officials have asked the city for $60 million and the state for $120 million. ‘The school district’s in a crisis,’ Katz said. ‘They’re the same tax base.’”

No amount of “investment” can substantially help Philadelphia. All that really means is new loans that have to be paid back. In the meantime, what about the expenses that led up to this insupportable budget? As Mish wrote on his Global Economic Analysis blog about Mayor Nutter:

“What fundamental issues is Nutter solving? Pensions? No. Schools? No. Union Salaries? No. Bloated Payrolls? No. Benefits? No. Instead of inviting Wall Street to a private tour, Nutter ought to be inviting the press and private citizens to a press conference to declare the city’s bankruptcy.”

It has become common to refer to banks that are overloaded with debt but are kept from bankruptcy as “zombie banks.” Likewise, Japan’s economy has been described as a “zombie economy.” Here we see it is happening to Philadelphia. The city of brotherly love is becoming the city of the walking dead.

The city government has no way to really pay back its debts at this point. It needs to stop pretending that there is any other way to go forward beside bankruptcy. There simply isn’t. Right now, over a fourth of the 1.5 million people who live in Philadelphia live in poverty. There is no way they can afford taxes that are high enough to pay off this debt. Those who are wealthier will probably simply relocate if the city government tries to raise their taxes to make up for the shortfall.

We need to cut our losses and learn the lesson to never loan money to a government entity.