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Harrisburg Mayor Plans to Risk City Payroll to Pay Debt Service Next Month

Harrisburg Mayor Linda Thompson told the City Council that if they reject her fiscal rescue plan for Pennsylvania’s capital, she’ll make a $3.3 million bond payment next month and won’t have funds to cover municipal paychecks.

“I don’t plan on missing that payment,” Thompson said of the debt obligation. Harrisburg has a $5.6 million deficit, she said, adding that she won’t have enough money to cover the payroll for the rest of the year after covering debt service.

Thompson responded to questions from council members on her fiscal-recovery plan, which hews closely to a rejected proposal from state consultants. Her blueprint calls for selling the Harrisburg Authority’s incinerator and leasing the city’s parking system. The city has a $5 million budget deficit and entered the state’s Act 47 fiscal-rescue program in December.

More help should come from the state as well as Dauphin County, which encompasses Harrisburg, and bond insurer Assured Guaranty Municipal Corp., said Susan Brown Wilson, one of the four council members who voted down the consultants’ plan.

“They need to come to the table and offer more than what they’re offering us,” Wilson said.

The city must pass a plan by Sept. 6 or risk losing state aid, said C. Alan Walker, Pennsylvania’s economic development secretary. Harrisburg, which has weighed bankruptcy, would also lose funds if it seeks court protection before July 2012, under a state law enacted in June.

Thompson told the council that she has no second option if her plan is also rejected. Tax revenue is declining and about a third of the city’s 49,500 residents live in poverty.

“To think of it, it would be disastrous,” she said. The city employs about 480 workers and pays them about $1.24 million in wages every two weeks, said Robert Philbin, a spokesman for Thompson.

Harrisburg’s fiscal crisis began with borrowing to overhaul and expand the incinerator, producing a debt burden five times the city’s general-fund budget. Next month’s payment is for general-obligation debt, which the city has never skipped.

To contact the reporter on this story: Romy Varghese in Harrisburg at rvarghese8@bloomberg.net.

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net.

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