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by Vault Consulting Editors | June 14, 2011


Readers of Consult THIS will be aware that Harrisburg, Pennsylvania, the once-proud state capital now home to less than 50,000 people, is in serious economic trouble. Strapped with hundreds of millions in debt, state officials have conceded that the city no longer controls its own destiny (for specifics on the damage, see here). We could be witnessing the death throes of a classic American city: it's all very strange and morbidly interesting stuff. But this is a consulting blog, you say! Who cares about a bunch of middle class Amish folk in the middle of Pennsylvania?

Enter: Novak Consulting Group. Ever since the state appointed this Ohio-based strategy/turnaround outfit to bring the city out of debt, we've been keeping an eye on their progress. Consider it a cruel experiment in hopeless public sector turnaround jobs. So far the engagement, which started back in January, has been limited to rhetoric from all sides: panic from the people, frankness from the government, and a lot of politicking and little groundwork from the firm itself.

But this week, the Novak Group finally got around to laying out some of its plans in detail.

The consultants' plan basically calls for a full-fledged spending freeze and the kinds of deep, painful public sector cuts that other cities have witnessed (albeit in more modest doses) across the country of late. Among the specifics: wage freezes for all public employees, whose contracts will be "restructured" in the form of slashed benefits, overtime limits, and overall pay reductions; sale (to private sector) of the city's parking system; sale of the city's pet-project-turned-nightmare trash incinerator; higher property taxes; general departmental restructuring. Harrisburg owes hundreds of millions on the incinerator alone, which has proved a massive financial mire - precisely the opposite of its intended purpose.

Julia Novak, the Novak Group's lead consultant, conceded that the cuts wouldn't be popular. “Nobody likes this plan,” she wrote in her firm's report. “But, I think that you’ll find it has the greatest potential for getting the city out of the situation that it’s in.”

Maybe so. The plan certainly won't help restructuring/turnaround consultants shed the (usually inaccurate) label of "hatchet men", but for a city $300 million in the hole a hatchet is probably just what's needed. People in Harrisburg aren't so sure. "It asks a lot of the taxpayers and citizens of Harrisburg," warned one city councilman.

That won't bother Novak and Co. much, as they have already antagonized the government that they suggest got the city into its current mess. The report cites "unwise decisions" as resulting in "extremely low" public confidence in the city's leadership.

So, in sum: slash all spending, restructure/reorganize government departments, redraft contracts, and sell off key assets. Sounds familiar, doesn't it? What will be interesting to see is how close Harrisburg skirts to total bankruptcy; while that might kill off a debt-laden company for good, Harrisburg isn't going to simply drop off the map. Further, I'm looking forward to seeing the firm get more creative once these cost-cutting measures take effect. Anyone can slash and burn; let's see what they can build from the ashes and try to put Harrisburg truly on the road to recovery.

Read More:

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Harrisburg: Revisited
Community slams Harrisburg consultants

SF Chronicle/Bloomberg: Harrisburg Must Sell Assets to Avoid Bankruptcy, Report Says
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