Sunday, February 21, 2010

Rendell Unable To Bailout Harrisburg

This is not a comprehensive follow up report to this post but you should get the picture.

The small city of Harrisburg which has missed major payments on 288 million dollars in municipal bonds it had backed will not be getting aid anywhere near what would be needed to clean up it's mess. (68 million is due this year)

What's disturbing here, is that the wad of debt in default here isn't regular city debt, but bonds issued by an "Authority", that Harrisburg guaranteed, just the kind of thing Pittsburgh and Allegheny county have done over and over. Often these promises are so obscure and complex, almost nobody knows what taxpayers are really on the hook for.

The bottom line is that there's no way the state was in any position to cover the amount involved but I doubt bondholders thought that. Too big to fail is the motto of government finance. If the Authority, can't pay, the city will step in; if the city can't the state will and so on up the chain--or at least that's what people thought.

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