PA Gives Capital City $4.4 Million, Says It’s Not a Bailout

As some Democrats are learning, bailing out banks and corporations is unpopular. So when Democratic Pennsylvania Governor Ed Rendell decided something needed to be done to save PA's struggling capital city of Harrisburg from declaring bankruptcy, he avoided using the term. Instead, the $4.4 million the state provided to the city has been dubbed "expedited" funding.

In the spotlight is $3.3 million the city owes in bond payments this week that it can't pay, a deficit of $4.3 million, and an almost 40-year incinerator project that doesn't generate enough revenue to cover the $288 million debt it has caused. This year alone, the city owes $68 million for the project -- more than its annual budget.

To save the almost-bankrupt city, Rendell decided to move up $2.6 million in funds slated for municipal-pension assistance and $987,000 for fire protection. In addition, the city will receive $850,000 in grants to pay a financial advisor. Of the money given, only $500,000 is required to be paid back.

In a city of only 47,000, the average amount of debt per person is just over $91,000 if one divides the $4.3 million deficit by the population. That's a tall order considering that over a quarter, nearly 30 percent, of the city's residents live below the poverty level.

The recent handout may just be a temporary fix, however. Another bond payment is due in March, and unless city leaders can figure out how to raise money or lower expenditures, another round of "expedited" funds could be in order.

Before the state aid was announced, Harrisburg Mayor Linda Thompson proposed closing a fire station, laying off city workers, increasing parking fees, and simply ignoring bond obligations. And it was learned after the state aid deal was reached that the city would have missed payroll by $500,000 dollars.

Harrisburg is not alone in its bond debt problem. Cities across the country are bogged down with muni bond debt that threatens local economies.

"Stories like that have become frustratingly common around the country," writes Steve Malanga in a lengthy expose on the problem in this summer's City Journal. "State and local borrowing, once thought of as a way to finance essential infrastructure, has mutated into a source of constant abuse."