Municipal Bond Forum
Harrisburg, PA debt payment
Q
There was a report on the CNN Web site about the city of Harrisburg, PA, missing a bond payment, apparently for the month of August. The governor of Pennsylvania has refused to bail out the city. Could you please comment on this situation and whether you think it may be a harbinger of things to come?
A
James A. Klotz responds:
Although Harrisburg has never missed an interest payment on its general obligation (G.O.) debt, officials had said the city would not make its upcoming payment. In recent days, however, the state has stepped in and will expedite funds to the city that will enable it to avoid default.
Had a default occurred, AMBAC, which insured these G.O. bonds, would have been responsible.
Despite the fact that Harrisburg is the state capital, it has a population of only 45,000 and has badly managed its finances. While it is true that the financial crisis has put many municipal budgets under stress, we believe the majority of issuers will continue to make the necessary budget adjustments to maintain the integrity of their bonded debt.
Additionally, as we note in our recent article, “State Helps Harrisburg Make G.O. Debt Payments,” public commentators seem to thrive on doomsday scenarios, though reports of widespread municipal distress are simply not supported by facts.
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