In a move that is sure to backfire, Last-Minute State Aid Helps Harrisburg, Pennsylvania, Make Debt Payment

The embattled government of Harrisburg, Pennsylvania’s capital, will avoid default on a $3.3 million bond payment this week because of $4.4 million in last-minute state aid. Of the last-minute state aid, half a million dollars are considered a loan and must be repaid.

With Harrisburg’s city council scheduled to meet Tuesday to explore filing for bankruptcy, Gov. Ed Rendell announced Sunday that he was speeding up state funds and grants to the financially-strapped capital.

“I see this as Wall Street versus Main Street,” said city councilman Brad Koplinski. “The bondholders are not willing to budge and they expect us to completely take care of this on the backs of our city’s taxpayers.”

Newly elected Mayor Linda Thompson, who has feuded with the city council she once headed, opposes a municipal bankruptcy filing. “It’s the very last option after everything else has failed,” she said.

Harrisburg already has skipped millions of dollars in payments on bonds it backed for the costly renovation of a trash incinerator, which dates back to the 1970s. The incinerator is up and running but doesn’t generate enough revenue to cover debt that has reached $288 million. This year, the city owes incinerator debt payments of $68 million, an amount that surpasses its annual budget.

In Alabama’s most populous county, Jefferson, the government is saddled with about $5 billion in debt stemming from the overhaul of its sewer system in the mid-1990s. Merit increases for county workers have been frozen, building and road repairs halted. A brand new jail is vacant because there are no funds to hire workers or pay utilities. As in Harrisburg, officials are exploring bankruptcy.

In the impoverished town of Central Falls, Rhode Island, near Providence, officials recently agreed for a receiver to take control of local finances and consider the rewriting of contracts and cutting of pension benefits. A city of 19,000, Central Falls has a budget of about $18 million and projects a $3 million deficit this year and a $5 million gap in fiscal 2011. The city also has $4 million in a pension fund that has $35 million in unfunded liabilities.

“If we are the first domino to fall, I know there are cities that are watching us and the bond market is watching, because if they make a deal with us, they’ll have to make a deal with every other municipality that’s having trouble right now,” Koplinski said.

In addition to the incinerator debt, Harrisburg is coping with a $9 million deficit in the current budget. The city is considering layoffs, closing and leasing or selling a firehouse, and the selling of two fire trucks, among other measures. It has assigned volunteers to man police stations in order to have all officers on the streets.

Mayor Linda Thompson is a fool as is Governor Ed Rendell.

Harrisburg is bankrupt. Period. Wasting 10’s of millions of dollars will not change that simple fact. Harrisburg would be much further ahead had it skipped bond payments years ago. Now that is money down the drain.

Harrisburg cannot afford a $500,000 loan from the state to pay bills it should not pay. It has no means of making the next bond payment. While cutting city services may be a good thing to do, cutting city services to pay bondholders, when city residents get nothing out of it but higher taxes is point blank stupid.

There is no deal to work out with the bondholders other than default and bankruptcy court.

Governor Ed Rendell is acting in the interests of the bondholders not in the interests of Harrisburg. The move is so foolish I have to wonder what the governor’s connection to the bondholders is. The city council should reject this offer.

Mike “Mish” Shedlock
Click Here To Scroll Thru My Recent Post List