Rendell comes to aid of financially troubled capital city that warned of skipping bond payment

Rendell comes to aid of troubled capital city

HARRISBURG, Pa. — Gov. Ed Rendell is working on ways the state can help Pennsylvania’s capital city avoid a rare default on a general obligation bond, a step that could settle worried municipal bond investors and prevent further damage to Harrisburg’s ability to borrow, a top aide said Friday.

The administration is trying to expedite payments to Harrisburg that would be due to the city in later months, said Rendell’s chief of staff, Steve Crawford.

“We’re trying to work with the city, to help them, within reason,” Crawford said.

Rendell is to appear at a Sunday news conference with the city’s mayor, Linda Thompson. Crawford did not give details about the payments.

In recent months, Rendell has met with Thompson while some of his aides have worked on the finances of the cash-strapped city of 47,000.

Even before the Thompson administration said last week it would skip a $3.3 million general obligation bond payment due Wednesday, the city was making headlines for a massive debt that threatens to drag it into bankruptcy.

A $280 million-plus debt, a huge chunk of which is due in December, is tied to the costly and problem-plagued renovation of the city’s aging trash incinerator that began in 2003. The city has devised no way to pay it.

The bond payment due Wednesday is completely separate from the incinerator.

Thompson has said skipping the bond payment would help the city deal with a multimillion-dollar budget gap, which she blames on lagging tax collections.

Thompson, who took office in January, framed the decision as a choice between making the bond payment later or cutting essential services and laying off firefighters, police officers and city employees now.

The decision drew rapt attention from money managers and advisers, since municipalities have historically taken great pains to make timely payments on bonds for civic projects such as roads. Some municipal bond analysts say it might take a small amount of defaults to drive up the cost of borrowing for all municipalities.

While such a default almost surely would make it harder for Harrisburg to borrow money, some city officials say Harrisburg’s creditworthiness is already badly damaged.

The bond’s insurer, Ambac Assurance Corp., has said it would cover the payment to investors. An Ambac spokesman would not comment this week on how the company, which itself is dealing with its own financial troubles, will collect the money from the city.