Harrisburg stiffs insurer, investors

Harrisburg plans to miss another payment on its 1997 general-obligation bonds, says Cory Angell, spokesman for state-appointed receiver William Lynch. "On Sept. 15, 2012 there is $1.765 million coming due on the Series D and $1.635 million coming due on the Series F," but that $3.4 million won't be paid by the city, Angell told me. Bond insurer Ambac will make the payments, he added.

The city missed an earlier payment under previous receiver David Unkovic after he reduced what he said were illegal payments to city utilities that had been collected from suburban towns, a loss in revenue that made it even harder for the city to pay its staff and other operating expenses while still paying bondholders.

To keep cash flowing to the city's lenders, Lynch had tried to force Harrisburg to double its wage tax, to 2%, so it can better pay its bills, but the effort has stalled in Commonwealth Court. Harrisburg officials say the state's attempt violates Pennsylvania's state constitution.

The receiver had no comment on Ambac's efforts to force Harrisburg to come up with the money. 

Harrisburg City Council and the city's financial officers want Harrisburg to seek Chapter 9 bankruptcy protection so they can reduce payments to bondholders who financed the city's ill-advised, failed incinerator improvement project and other debt whose suitability was brought into question by a Harrisburg Authority forensic audit last winter.

The Corbett administration has tried to block bankruptcy and wants the city to raise taxes and cut services instead.

Moody's Investor Service, which says it expects Harrisburg will eventually go bankrupt, classes Harrisburg with Scranton, PA; Moberly, MO; and Wenatchee, WA, among a small but growing group of cities that are refusing to pay their bondholders, reports Bloomberg here.