Yesterday, Pennsylvania Gov. Ed Rendell threw the debt-laden capital city of Harrisburg a lifeline — but the lifeline is made of razor wire.

To help Harrisburg avoid a default on a general-obligation debt payment this week, Rendell will advance the city aid payments due from the state later in the year. The state will further lend and grant Harrisburg money to hire an independent adviser to “craft a long-term fiscal plan,” according to The Bond Buyer.

In justifying his actions, Rendell said they don’t constitute a bailout, and that an acute situation makes them necessary.

“A default [by Harrisburg] would have serious ramifications,” the governor said (as quoted in the same article). “It would have serious ramifications … all over the length and breadth” of Pennsylvania, raising interest rates”for other municipalities and school districts “or even mak[ing] it difficult, if not impossible, for other cities to sell their bonds.”

Problem is, Rendell’s actions will have serious ramifications, too:

First, for Harrisburg itself. Rendell seems to think that the solution to too much debt is more debt, this time owed to the state. By contrast, any “long-term fiscal plan” for Harrisburg should at least consider debt restructuring, including losses of principal for bondholders.

Even a cursory look at the city’s budget and its previous emergency financial plans makes this clear. Against a $65 million operating budget this year, Harrisburg is supposed to pay $68.7 million in annual debt-service costs.

Sometimes, you’ve borrowed so much on such a bad schedule that you just can’t repay it — and borrowing even more money won’t help and instead will hurt.

Indeed, Pennsylvania wants Harrisburg to repay some of the money the state is advancing it by selling off assets. This comes on the heels of an earlier emergency adviser’s advice to do the same. Of course, potential asset purchasers will know that the city is desperate, and bid accordingly. If you can’t pay the mortage on your McMansion, you probably shouldn’t sell the car that gets you to work.

The independent adviser’s other ideas, proffered earlier this year, included “deferring planned capital expenses” — also not a great way to maintain or improve the tax base.

Second, for the health of municipal-bond markets. Rendell is only “helping” Harrisburg to pay its nominal general-obligation debt — not the debt that the city owes on a poorly planned and executed incinerator project.

But this distinction is political and arbitrary, because Harrisburg pledged its general-obligation credit to the incinerator debt.

General-obligation bondholders are not victims here. Sophisticated general-obligation bond underwriters and insurers should have long ago questioned why the city had weakened its general-obligation credit in making a promise on the incinerator debt that it would not be able to keep. If advisers and investors had done so, perhaps they would have prevented Harrisburg from incurring such an onerous debt burden in the first place.

Allowing issuers and their rescuers to pick and choose which general-obligation pledges they will honor certainly doesn’t strengthen the municipal-bond market.

Third, for other cities, towns, school districts, and states. As for the idea that a Harrisburg default would raise borrowing costs for other municipal borrowers: maybe, and good.

Many municipalities — including municipalities in New York — can borrow too easily largely because bondholders think in the back of their minds that if something bad happens, the state will bail them out. In turn, state bondholders figure that if something bad happens to them, the feds will step in.

Enabling states, cities, and towns to borrow too much, too cheaply doesn’t help borrowers — or taxpayers — in the long run.

You may also like

Remembering the scandal that brought down Health Commissioner Howard Zucker

The resignation of Dr. Howard Zucker as state health commissioner marks the end of a term marred by scandal over his role in managing the coronavirus pandemic. The much-debated compelling nursing homes to admit COVID-positive patients, though it origi Read More

As leaves turn, NY’s post-pandemic recovery still has very far to go

Entering the second autumn since the COVID-19 outbreak of March 2020, the pace of New York State's pandemic economic recovery has been abysmal by almost any standard. New York was the national epicenter of the pandemic, and Governor Cuomo's "" business Read More

More NY job gains in August—but employment needs to rise a lot further

New York's jobs report for August looked relatively strong—but only by comparison, that is, with . On a seasonally adjusted basis, New York gained 28,000 private-sector jobs last month—a growth rate of 0.4 percent, according to . This was double th Read More

Projected PIT Haul Brightens State Budget Office’s Fiscal Forecast 

Stronger than expected tax payments this spring led the Governor’s Division of the Budget (DOB) to increase its personal income tax (PIT) revenue projections for the next four years by $8.5 billion above its April pr Read More

After 10 weeks, all but five of the Empire Center’s 63 requests for pandemic data remain unfulfilled

Over the 10 days that Hochul has been in office, there has been no further progress on the Empire Center's record requests. Read More

New York’s health benefits remain the second-costliest in the U.S.

New York's health benefit costs increased faster than the national average in 2020, leaving it with the second-least affordable coverage in the U.S. The state's average total cost f Read More

Cuomo’s “FOIL at a Glance”

The document, titled “Foil at a Glance,” lays out the Cuomo administration’s procedures for handling FOIL requests Read More

Manhattan Office Suites Emptier Than Other Major Metros

Fewer than one in four New York City office workers are back in the office, according to a pair of datasets issued this week.    Read More


Sign up to receive updates about Empire Center research, news and events in your email.


Empire Center for Public Policy
30 South Pearl St.
Suite 1210
Albany, NY 12207

Phone: 518-434-3100

General Inquiries:

Press Inquiries:


The Empire Center is an independent, non-partisan, non-profit think tank located in Albany, New York. Our mission is to make New York a better place to live and work by promoting public policy reforms grounded in free-market principles, personal responsibility, and the ideals of effective and accountable government.

Empire Center Logo Enjoying our work? Sign up for email alerts on our latest news and research.
Together, we can make New York a better place to live and work!