Pennsylvania capital gets state aid to avert bond default

September 13, 2010 by · Leave a Comment
Filed under: Credit News 

We have an interesting fight on our hands in Harrisburg.  The current Governor Ed Rendell is putting pressure on the city and its council to make some drastic changes to avoid default and possible bankruptcy.  It looks like PA has a act on its books called “Act 47” where the state can appoint and administrator and take control of local decision making to avoid financial turmoil.

The City Council feels that the Governor is using this to put pressure on them to sell city assets and raise taxes for covering their current shortfall.   The argument is that the council thinks they are making the best decision for the city and the state should not interfere with that.  The state has a strong argument as well being that if they default, that might bleed over and effect the state’s credit rating.  My bet is that the state will when out and Harrisburg will crave in to the austerity demands.

Business Week – Pennsylvania’s capital city, Harrisburg, will get an advance on state aid to meet $3.3 million in bond payments due the day after tomorrow, averting what would have been the second-largest general-obligation default in the U.S. this year.

Governor Ed Rendell, who ordered the funds released early, warned city officials against seeking bankruptcy protection and said they must work out a longterm solution, perhaps by selling city assets, before another round of bond payments due in March.

“We could not stand by and let the city default on these bonds,” Rendell, 68, who leaves office after this year, said in a news conference yesterday with Harrisburg Mayor Linda Thompson. “What we did today gives us breathing space.”

Harrisburg’s default would boost borrowing costs or make credit unobtainable for other Pennsylvania municipalities and school districts, and jeopardize the city’s attempts to devise a recovery plan, Rendell said.

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