Municipal meltdown

1 September 2010 By Martin Hutchinson

Harrisburg, Pennsylvania, is skipping a general obligation bond payment. The default is small but the significance potentially much larger. The struggles of municipalities tend to lag the economic cycle and a sluggish recovery could very well produce a surge of them.

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Harrisburg, the capital of Pennsylvania, said it would miss a $3.29 million bond payment in two weeks, thereby defaulting on its municipal debt. The payment is expected to be picked up by the bond's insurer, Ambac Assurance. The debt concerned was issued in 1997, has a total outstanding of $51.5 million and a final maturity of 2022.

Harrisburg's particular difficulty is a $288 million debt on a failed incinerator project, for which it has not budgeted $68 million in payments due in 2010. About $196 million of this debt is guaranteed by Assured Guaranty.

The HarrisburgCarlisle region had 8.4 percent unemployment in June, 140th lowest of the 372 regions covered by the Bureau of Labor Statistics. The Harrisburg metro market was in the lowest quintile of houseprice declines for 200710, according to a June 2010 Brookings Institute study.

Pennsylvania had a state budget shortfall of $4.1 billion, 15.6 percent of spending, for the 201011 fiscal year, below the average of 18.7 percent for all states, according to the Center for Budget and Policy Priorities.

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