Harrisburg City Council Might Not Make That Bond Payment


[credit provider=”flickr / Clement.Meynier” url=”http://www.flickr.com/photos/clementmeynier/6014756035/”]

The Harrisburg, PA city council was faced with a simple choice on Wednesday: vote to support Mayor Linda Thompson’s rescue plan (strongly endorsed by Governor Tom Corbett) or reject the mayor’s plan and face the loss of all decision-making authority. Harrisburg is out of good options (the city’s $300 million debt burden is equal to five times its general fund budget), but it seemed clear to many outside observers that supporting the mayor’s plan would be the least bad option.  The Harrisburg city council did not quite see things that way.

In a 4-3 vote the Harrisburg city council rejected the mayor’s plan.  Rejecting the plan is more than just an act of willful defiance against both mayor and governor; it also places Harrisburg in a precarious situation.  A $7.5 million leasing agreement with the Harrisburg Parking Authority is now imperiled, and with it the likelihood that the city will fail to make a scheduled $3.3 million payment on general obligation bonds on Sept 15 has increased substantially.

Given this dismal fact pattern bankruptcy would seem a logical choice, if only to give embattled Harrisburg the benefit of an automatic stay from creditors and to allow tempers to cool.  Sadly, that option is not available to the city, due to a Pennsylvania state law calling for the loss of state funds if Harrisburg should file for bankruptcy before July 2012.

Harrisburg will be left to muddle through, and the city’s bondholders may soon find themselves wishing for an orderly chapter 9 bankruptcy filing as opposed to the financial limbo they are being plunged into.

About the author:

David Johnson is a partner with ACM Partners, a boutique financial advisory firm providing due diligence, performance improvement, restructuring and turnaround services to companies and municipalities. He can be reached at 312-505-7238 or at [email protected].