PhillyDeals: For Harrisburg, the check is not in the mail

Bonds are safe.

Governments don't go broke.

The check is in the mail ...

They are all made lies, in a chilling letter sent Monday by Robert F. Kroboth, acting business administrator for the city of Harrisburg, to the city's bond agent at Bank of New York Mellon Trust Co.:

"Unfortunately, the City's current financial situation precludes us" from making $3.29 million in promised bond payments "at this time."

That means Harrisburg plans to miss its next scheduled payment on general- obligation bonds it sold investors in 1997.

The city's working on a "plan to meet its debt obligations in the near future," Kroboth promised.

In fact, Harrisburg officials have been divided on whether to sell parks and parking garages, raise taxes and water rates, or what.

Harrisburg's bond insurance company, Ambac, pledged to cover the city's default. Then it will try to collect the money from the city, plus any penalties.

That won't be fun. "Insurers make a good villain" for politicians pressed between cutting services to aggrieved voters and paying old promises to far-off investors, Alan Schankel, director of fixed-income research at Janney Montgomery Scott L.L.C. in Philadelphia, told me.

The municipal-finance market hasn't collapsed. On Tuesday, the Pennsylvania Turnpike Commission sold $600 million in bonds to U.S. and foreign investors, at a rock-bottom interest cost - to the commission - of less than 3.6 percent, turnpike chief financial officer Nikolaus Grieshaber told me.

The bonds actually pay investors more than 5.5 percent. But U.S. taxpayers will be financing the difference (less taxes paid by some, not all, of the bonds' buyers), for the next 30-plus years, under the Build America Bonds program, which is supposed to help stimulate the weak U.S. economy. Grieshaber says he'll use the cheap borrowed money to pay for turnpike projects during the next two years.

Schankel has seen municipal finances melt before, including Philadelphia's near-collapse in the 1980s and early 1990s. "It was scarier then. We had less information," Schankel said.

But Harrisburg isn't the only place in danger of stiffing its lenders.

The Inquirer's Maya Rao wrote Wednesday about how Camden County's (government-financed, privately owned) incinerator, having burned up $150 million in state subsidies since 1999 so it could keep paying its bondholders, will need an additional $25 million by Dec. 1, or it, too, will default.

That money isn't in Gov. Christie's budget, and those bonds aren't insured.

Westinghouse Lighting Corp. is planning to sell its 230,000-square-foot world headquarters in Northeast Philadelphia, and find a new home for boss Ray Angelo and 125 employees, preferably nearby.

"It most likely will be smaller," says Kathleen Katz, senior director of marketing at Westinghouse. The company moves its imported lights faster, ships goods prepackaged, and doesn't need some of that warehouse and product-finishing space.

Frank Roddy, president of broker Roddy Inc., says he hopes to sell the building for about $40 a square foot. "It would cost $75 a square foot to put up today," Roddy said. "We think it's probably the premier piece of industrial real estate available in Philadelphia." But, "It is a large facility," and big deals "don't happen overnight," Roddy said.

Developer and investor Joseph Grasso says he is looking for his firm's financial controller, Steve Smolenski. "He's disappeared," Grasso told me from the office of his Center City-based firm, Walnut Street Capital L.L.C.

Grasso said he and his father, also named Joseph, want to ask Smolenski about company funds. "We went out to his apartment in Downingtown, but it's all closed up," Grasso said.

Walnut managed the Curtis and Public Ledger buildings before it was replaced by lender Citigroup Inc. two years ago amid the national credit crisis.

Smolenski's absence won't affect Grasso's retail firm, Saxbys Coffee Worldwide L.L.C., which he said is preparing to come out of bankruptcy.