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.

City Of Harrisburg Defaults On Municipal Bond : Vegas Monorail Default Looms

To start with, yes this falls somewhat outside this blog's turf, but the debt elephant at all levels, is becoming harder and harder to ignore--and believe me we have tried. As one blogger on here once said--it's the economy stupid.

"In Harrisburg, which is Pennsylvania's capital and has a population of about 47,000, a March 1 deadline is looming on a payment of $2 million out of the $68 million due this year for the financing of an incinerator plant. The facility has about $288 million in overall debt.

"Bankruptcy is inevitable," Mr. Miller says. "We are in a terrible bind." A budget passed Saturday by Harrisburg's city council didn't include any funds to cover the debt payments, according to the city clerk's office."

Meanwhile in Vegas, the non profit corp which operates the new monorail on the strip, has filed chapter 11 bankruptcy and is almost certain to miss upcoming payments on 600 million in outstanding Muni bonds.

"Ambac Assurance Corp., the bond-insurance unit of Ambac Financial Group Inc., is seeking to have the case converted to a Chapter 9 proceeding. The insurer contends that the company is akin to a municipality. A judge is set to decide on the petition later this month."

Perhaps the most interesting and important case was the Bankruptcy of Vallejo, Calif., which is trying desperately to renegotiate the labor contracts of city workers, after a sharp drop in property values crushed the tax base.

Who knows how this will all play out, but government debt and unfunded obligations must be an important factor in all our urban decisions.