Racism adds to local financial woes: Harrisburg's former receiver

Pedestrians walk past a vacant business along Market Street in Harrisburg, Pennsylvania, January 18, 2012.

PROVIDENCE, R.I (Reuters) - Detroit, America's most distressed big city, may have some problems in common with Harrisburg, Pennsylvania, a much smaller city that has also struggled under a heavy debt load, Harrisburg's former receiver said on Monday.

Both cities' financial woes have been caused in part by the segregation of minorities and poor people, David Unkovic, the former receiver, said in a paper presented at a conference about distressed municipalities.

"Many of the core communities in Pennsylvania and around the country which are financially distressed have significantly more minority citizens than surrounding municipalities," he said.

Local governments tend to "isolate the poor, including many minorities, in defined political subdivisions where they receive substandard education, substandard services and substandard opportunities," he said.

Detroit's population of over 700,000 is nearly 83 percent black. The population of Harrisburg, the capital of Pennsylvania, at nearly 50,000 is about 52 percent black. Nationwide, the percentage of African Americans is around 13 percent.

With the state of Michigan now running the finances of Detroit and five other cities, nearly half of Michigan blacks have lost local political powers to the state.

Unkovic also blamed the finance industry for pushing complicated interest rate swaps, swaptions and other derivative products with names like "scoop and toss" onto local governments. Both Harrisburg and Detroit entered into such agreements, to their detriment, he said.

Unkovic abruptly resigned as the state-appointed receiver for Harrisburg in March 2012, in part because of the "political and ethical crosswinds" he faced.

In Michigan, Detroit's new emergency manager, Kevyn Orr, is working with advisory firms to craft a 10-year financial plan, the next step in the process since he was appointed on Thursday.

There should be a "rough cut" of the plan by May 1, Michigan Treasurer Andy Dillon said on Monday.

Dillon said the plan includes capital improvements and discussions of "growing the city."

"I do believe Detroit is very fixable," he said.

(Reporting by Hilary Russ; Editing by Leslie Adler)