Rendell marshals aid package for Pa.’s financially troubled capital, insist it’s not a bailout

By Marc Levy, AP
Sunday, September 12, 2010

Rendell marshals aid for troubled Pa. capital city

HARRISBURG, Pa. — The Rendell administration is speeding more than $4 million to help Pennsylvania’s capital city avoid a rare default on a general obligation bond and help it right its troubled finances, even as massive debt threatens to drag it into bankruptcy.

Gov. Ed Rendell insisted Sunday that the aid is not a state bailout, and said he only got involved in assembling the aid package after Harrisburg Mayor Linda Thompson called him Thursday morning.

All of the state money, except for a $100,000 grant under his control and a $500,000 loan, was due to the city anyway in future months, and should give it “breathing space” to sort out a solution, he said.

But he warned that allowing a Harrisburg default would damage the creditworthiness of not just the city, but its school district and Dauphin County as well as cities across Pennsylvania that want to borrow for civic projects or that need a short-term loan to pay bills until tax revenue is collected.

“Once there’s a default on a municipal general obligation bond, it would at least raise the interest rate or even make it difficult, if not impossible, for all cities to sell their bonds,” Rendell told a Capitol news conference. “So for all of these reasons … we could not stand by and let the city default (on) its obligation to pay this bond.”

Thompson must still sort out how to deal with the city’s immediate budget gap, which prompted her to announce that Harrisburg would skip a $3.3 million general obligation bond payment due Wednesday, as well as massive debt payments due in December on the city’s trash incinerator.

“It is my goal to put the city, this capital city, back on solid financial footing and meet our general obligations and all of our debt obligations and make Harrisburg a model city and a model comeback city,” she said.

Thompson took office in January and promptly became mired in a variety of disputes with city council and Harrisburg’s elected controller.

The decision to skip the bond payment drew close scrutiny from the nation’s municipal bond investors and money managers, since municipalities have historically taken great pains to make timely payments on bonds for civic projects such as roads.

Thompson 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 immediately. Her spokesman, Chuck Ardo, said her call to the governor Thursday was simply one of the things she was doing to try to avoid missing the payment.

In recent months, the cash-strapped Susquehanna River city of 47,000 has made headlines for suggestions by some city leaders that Harrisburg seek bankruptcy protection as a tactic to force concessions from lenders on its trash incinerator.

Already, Harrisburg has skipped payments on some of the incinerator debt backed by the city, potentially exposing it to lawsuits from creditors seeking a court order for the city to raise taxes and pay its debts. Rendell has marshaled current and former aides to advise Thompson on the matter.

On Sunday, Rendell repeated warnings to Harrisburg leaders, saying that their failure to work together to resolve the city’s problems could lead the city into a situation where a state agency or a bankruptcy judge takes control.

The largest chunk of state money headed to Harrisburg within days is $2.6 million in pension assistance that many municipalities are to receive from the state in the coming weeks. Another nearly $1 million is for the emergency fire protection services that the city of Harrisburg routinely offers to the Capitol Complex.

The rest — $850,000 — is a grant and loan package to help Thompson hire a Chicago-based financial advisory firm, Scott Balice Strategies. Some city council members have questioned the need to hire the firm after the city already paid another advisory firm to give it a report on its finances earlier this year.

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