Phoenix
13th September 2010, 09:04 AM
Suck the People dry so the "investors" don't lose a penny
http://www.ft.com/cms/s/0/4c563be4-be98-11df-a755-00144feab49a.html
US state steps in to meet city’s debt cost
By Aline van Duyn in New York
Published: September 12 2010 20:12 | Last updated: September 12 2010 22:38
The state of Pennsylvania has stepped in to help its capital city Harrisburg avoid a default by advancing next year’s state aid so that the money can be used to make a $3.3m bond interest payment due this week.
On Sunday, Ed Rendell, the governor of Pennsylvania, announced a $4.3m cash transfer and said missing the bond payment was “not an optionâ€. “Harrisburg’s financial future is still very cloudy, and difficult decisions still need to be made to return this city to financial stability,†he said in a statement. “Allowing a missed bond payment, however, would not be a good decision.â€
Harrisburg’s strains have been closely watched as other US local governments and states struggle to close gaps in their budget amid falling tax revenues in the downturn.
For many months, Harrisburg officials have been debating how to handle its debt burdens and whether the city should follow a handful of other cities that have filed for bankruptcy.
Harrisburg has already defaulted on $282m of debt in an incinerator project that the city partially guaranteed. The $3.3m payment due on September 15 is an interest payment on the city’s general obligation bond sold in 1997.
Such municipal debt is sought out by many investors in the $2,800bn US municipal bond market because the GO bonds have a reputation as being safer than many other types of bonds.
Payments take priority over other spending. A default on such a GO bond could have knock-on effects across the municipal bond market, increasing the interest payments that are demanded by investors and leading to a reassessment of default risks.
Politically, there can be incentives for cities not to pay bondholders if it means that services do not have to be cut, although many GO bonds are held by local residents who get tax breaks for buying such debt.
As well as paying bondholders, $850,000 of the money will be used to pay Scott Balice Strategies, a financial management company, to “develop a comprehensive plan for the city’s financial stabilityâ€.
Last week, Linda Thompson, Harrisburg’s mayor, proposed “painful steps†to tackle the budget deficit including the closing of a fire station and further layoffs. “There are more difficult decisions to be made in the near future,†Ms Thompson said last week.
Mr Rendell said in Sunday’s statement that bankruptcy should not be an option for Harrisburg until all other options had been exhausted. Sunday’s deal includes a $500,000 loan that Harrisburg will have to repay once its finances improve.
http://www.ft.com/cms/s/0/4c563be4-be98-11df-a755-00144feab49a.html
US state steps in to meet city’s debt cost
By Aline van Duyn in New York
Published: September 12 2010 20:12 | Last updated: September 12 2010 22:38
The state of Pennsylvania has stepped in to help its capital city Harrisburg avoid a default by advancing next year’s state aid so that the money can be used to make a $3.3m bond interest payment due this week.
On Sunday, Ed Rendell, the governor of Pennsylvania, announced a $4.3m cash transfer and said missing the bond payment was “not an optionâ€. “Harrisburg’s financial future is still very cloudy, and difficult decisions still need to be made to return this city to financial stability,†he said in a statement. “Allowing a missed bond payment, however, would not be a good decision.â€
Harrisburg’s strains have been closely watched as other US local governments and states struggle to close gaps in their budget amid falling tax revenues in the downturn.
For many months, Harrisburg officials have been debating how to handle its debt burdens and whether the city should follow a handful of other cities that have filed for bankruptcy.
Harrisburg has already defaulted on $282m of debt in an incinerator project that the city partially guaranteed. The $3.3m payment due on September 15 is an interest payment on the city’s general obligation bond sold in 1997.
Such municipal debt is sought out by many investors in the $2,800bn US municipal bond market because the GO bonds have a reputation as being safer than many other types of bonds.
Payments take priority over other spending. A default on such a GO bond could have knock-on effects across the municipal bond market, increasing the interest payments that are demanded by investors and leading to a reassessment of default risks.
Politically, there can be incentives for cities not to pay bondholders if it means that services do not have to be cut, although many GO bonds are held by local residents who get tax breaks for buying such debt.
As well as paying bondholders, $850,000 of the money will be used to pay Scott Balice Strategies, a financial management company, to “develop a comprehensive plan for the city’s financial stabilityâ€.
Last week, Linda Thompson, Harrisburg’s mayor, proposed “painful steps†to tackle the budget deficit including the closing of a fire station and further layoffs. “There are more difficult decisions to be made in the near future,†Ms Thompson said last week.
Mr Rendell said in Sunday’s statement that bankruptcy should not be an option for Harrisburg until all other options had been exhausted. Sunday’s deal includes a $500,000 loan that Harrisburg will have to repay once its finances improve.