March 18 (Bloomberg) -- Segregation of minorities and the poor fosters municipal fiscal distress, said David Unkovic, the former receiver of Harrisburg, Pennsylvania’s capital.
Harrisburg and Detroit, which received a state-appointed emergency manager last week, have majority black populations, as do many other distressed communities, Unkovic wrote in a paper he was to present today during the Bond Buyer Symposium on Distressed Municipalities in Providence, Rhode Island.
“Racial separateness and isolation of the poor” drive financial woes as much as ‘obvious’ factors such as escalating pension costs and declining tax revenue, according to the piece.
Putting an unelected receiver in charge of municipalities should be the last solution, he said. Critics have said installing such officials results in citizens losing their say in the governments closest to them. In Michigan, state-appointed officials in six cities will make decisions affecting the lives of almost half of the state’s black population.
Unkovic, a white, 58-year-old former bond lawyer who was Harrisburg’s first receiver before his resignation last year, said he was “disturbed” by comments from public officials and residents outside the city that its crisis was caused by “those people.”
He wrote that while in a meeting of about 30 white people from a Pennsylvania chamber of commerce, Unkovic heard complaints that Harrisburg officials weren’t listening to their suggestions on the need for business-tax rebates. Perhaps they would have a better reception, Unkovic suggested, if they worked harder to include minorities in committees or developed economic-development initiatives important to blacks and Latinos.
“Our American way of life continues to largely separate African-Americans from equal opportunity and equal education,” Unkovic wrote. “That separation is easier to maintain thanks to our system of local governments which tend to isolate the poor, including many minorities, in defined political subdivisions where they receive substandard education, substandard services and substandard opportunities.”
In Harrisburg, a city of about 50,000, whites make up a just a third of its population, compared with 82 percent statewide. About 32 percent of residents live in poverty, according to U.S. census data. The city has a “limited ability to raise additional revenues,” considering half of its property exempt from taxes, Unkovic said.
The situation is “more stark” in Detroit, he said, where almost half of property owners fail to pay real-estate taxes. In the city of about 700,000 people, of whom 83 percent are African-American, 36 percent live in poverty, according to Census data.
Detroit, which suffered with the decline of the automotive industry, faces more than $14 billion in long-term obligations. It would be the largest U.S. municipal bankruptcy if the new emergency manager, Kevyn Orr, fails to stabilize its finances.
Harrisburg’s crisis stemmed from an overhaul of a trash-to-energy incinerator that failed to generate enough revenue to pay off its debt, which is more than five times the city’s general-fund budget. The city also struggles to meet expenses and had for years engaged in gimmicks to close gaps. Unkovic ended its previous practice of overcharging sewer fees paid by surrounding towns to cover general fund expenses.
Unkovic’s successor, William B. Lynch, is implementing Unkovic’s court-approved recovery plan for the city, which includes asset sales and higher income taxes on residents.
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