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Pa. to spend $4.5M to help Harrisburg

The aid lets the capital avoid a bond default judgment, which could hurt other cities, too.

HARRISBURG - Gov. Rendell said Sunday that the state would speed $4.5 million to help Pennsylvania's capital avoid a default on a general obligation bond and help it right its finances.

Rendell insistedthat the aid was not a bailout, and said he got involved in assembling the aid package only after Harrisburg Mayor Linda Thompson called him Thursday morning.

All of the state money, except for a $100,000 grant under his control and a $500,000 loan, was due to the city anyway in future months, and should give it time to sort out a solution, he said.

But he warned that allowing Harrisburg to default would damage the creditworthiness of not just the city, but also its school district and Dauphin County, as well as cities across Pennsylvania that want to borrow for civic projects or that need short-term loans to pay bills until tax revenue is collected.

"Once there's a default on a municipal general-obligation bond, it would at least raise the interest rate or even make it difficult, if not impossible, for all cities to sell their bonds," Rendell said at a news conference at the state Capitol. Consequently, he said, "we could not stand by and let the city default" on its bond obligation.

Thompson must still sort out how to deal with the city's immediate budget gap, which prompted her to announce that Harrisburg would skip a $3.3 million general-obligation bond payment due Wednesday, as well as vast debt payments due in December on the city's trash incinerator.

"It is my goal to put the city, this capital city, back on solid financial footing and meet our general obligations and all of our debt obligations and make Harrisburg a model city and a model comeback city," she said.

Thompson framed the decision as a choice between making the bond payment later or cutting essential services and laying off firefighters, police officers, and city employees immediately. Her spokesman, Chuck Ardo, said her call to the governor Thursday was simply one of the things she was doing to try to avoid missing the payment.

On Sunday, Rendell repeated warnings to Harrisburg leaders, saying their failure to work together to resolve the city's problems could lead the city into a situation where a state agency or bankruptcy judge takes control.

The largest chunk of state money headed to Harrisburg within days is $2.6 million in pension assistance that many municipalities are to receive from the state in coming weeks.