Pennsylvania Loan May Help Harrisburg Avoid Second-Largest Muni Default
Sept. 9 (Bloomberg) -- Pennsylvania Governor Edward Rendell discusses Harrisburg's bankruptcy risk and the actions state government may take to assist the capital city. Harrisburg has already skipped about $6 million in payments this year on the municipal debt related to a waste-to-energy incinerator. It has considered seeking bankruptcy protection to cope with the $68 million in debt service it is responsible for in 2010. Rendell speaks with Margaret Brennan on Bloomberg Television's "InBusiness." (Source: Bloomberg)
Pennsylvania may lend its capital of Harrisburg the money needed to cover $3.3 million in general- obligation bond payments due Sept. 15 so the city can avoid becoming the U.S.’s second-largest municipal default this year, a spokesman for Harrisburg’s mayor said today.
The loan is among the options Governor Ed Rendell may offer the city of 47,000 on Sept. 12, when he has scheduled an 11 a.m. news briefing with Harrisburg Mayor Linda Thompson on city finances, said Chuck Ardo, her spokesman.
Harrisburg’s financial predicament grew more precarious after the city told the trustee of its 1997 D and 1997 F zero- coupon bonds that it wouldn’t make the Sept. 15 payments. That raised the potential for a bankruptcy filing, according to Council Vice President Patty Kim. The City Council has discussed bankruptcy options in the past without moving down that path.
Ardo described a state loan as “one of the options” Rendell was considering, in a telephone interview today. The possibility of a short-term loan was first reported on the website of the local newspaper, the Harrisburg Patriot-News.
A spokeswoman for Rendell, Amy Kelchner, declined to discuss details of the news briefing when asked about Ardo’s comment today.
Thompson, who took office in January, on Sept. 8 proposed closing one of the city’s four firehouses, furloughing senior staff members, raising parking fees and negotiating pay cuts with public employee unions to address a deficit in this year’s $118 million city budget. Tax revenue is coming in about $9 million below projections, a June 30 report from Thompson shows.
Negotiating a Plan
Pennsylvania’s Office of Local Government Services is negotiating with the city and Ambac Financial Group, the bond’s insurer, on a strategy to adjust the city’s cash flow to cover the Sept. 15 payments, Fred Reddig, executive director of the office, said in a telephone interview from Harrisburg Sept. 8. He said the state also was working on a plan to raise $750,000 for the city to cover the cost of hiring a financial adviser.
The city this year has skipped $8 million in payments it guaranteed on bonds issued by the Harrisburg Authority for a trash-to-energy incinerator built in the 1960s.
If Harrisburg misses the Sept. 15 payment, it would be the second-largest borrower, behind Jefferson County, Alabama, to default on bond payments this year, according to Matt Fabian, managing director of Municipal Market Advisors, in Westport, Connecticut.
To contact the reporter on this story: Dunstan McNichol in Trenton, New Jersey, at dmcnichol@bloomberg.net.
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