Tags: bonds | municipal bonds | munis | harrisburg | pennsylvania | default

Harrisburg Avoids Big Bond Default

Sunday, 12 Sep 2010 04:02 PM

Harrisburg, Pa., will get an advance on state aid to cover $3.3 million in bond payments due Sept. 15, averting what would have been the second-largest general-obligation debt default in the U.S. this year,

A total of $3.6 million in early payments for fire protection and pension assistance will enable the state capital to make scheduled payments on its 1997 Series D and 1997 Series F bonds, Governor Ed Rendell said today. The state is also working with the city and private lenders to secure a short-term tax- and revenue-anticipation note for operating funds, he said.

The city has been driven to consider bankruptcy in the face of $68 million in debt-service payments due this year on loans it guaranteed to help the Harrisburg Authority retrofit a trash- to-energy incinerator built in the 1960s. The payments are about four times what the city of 47,000 raises through property taxes, according to its budget.

“We could not stand by and let the city default on these bonds,” said Rendell, 68, who leaves office at the end of this year. “What we did today gives us breathing space.”

A default would boost borrowing costs or make credit unobtainable for other Pennsylvania municipalities and school districts, and jeopardize Harrisburg’s attempts to devise a recovery plan, the governor said at a news conference accompanied by Harrisburg Mayor Linda Thompson.

Asset Sale

If the city council doesn’t agree on an asset sale or other plan to shore up the city’s finances, he said, the state will take over local decision-making through Pennsylvania’s Act 47 municipal recovery program, or a bankruptcy court will control local affairs.

“They have to decide,” Rendell said of the city council. “If they don’t get together, the decisions will be made by the Act 47 administrator or they’ll be made by a bankruptcy judge.”

Under Rendell’s plan, Harrisburg will immediately receive $2.6 million in pension support payments scheduled for October, and $987,000 in state fire-protection grants, so the Sept. 15 bond payments can be made.

The state will also give Harrisburg $350,000 in grants and a $500,000 loan to hire Chicago-based financial consultant Scott Balice Strategies to develop options for financial recovery, potentially including the sale and lease of assets such as parking garages and meters.

The loan will be repaid “if there’s a sale of assets, and for the life of me I don’t see how there can’t be,” Rendell said.

Thompson, speaking at the press conference, chided by name three council members who have resisted her proposals to raise taxes and appraise assets for sale.

“It’s time for all of us to put the petty politics aside,” said Thompson, who became mayor in January.

If Harrisburg misses the Sept. 15 payment, it would be the second-largest borrower, behind Jefferson County, Ala., to default on bond payments this year, according to Matt Fabian, managing director of Municipal Market Advisors, in Westport, Conn.

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Harrisburg, Pa., will get an advance on state aid to cover $3.3 million in bond payments due Sept. 15, averting what would have been the second-largest general-obligation debt default in the U.S. this year, A total of $3.6 million in early payments for fire protection and...
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2010-02-12
Sunday, 12 Sep 2010 04:02 PM
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