Pennsylvania Capital Struggles to Pay Bondholders

The debt-beleaguered city of Harrisburg needs $305,952 to pay its creditors by November 15. City officials aren’t completely sure how it will be paid. The debt burden, the result of bonds issued by the Harrisburg Redevelopment Authority to pay for an incinerator project, is nearly four times the city’s budget. The issue raises the need for an accounting and review of off-budget enterprises (OBEs), a form of  special district government. Economist James T. Bennett shows that the growth of OBEs can be attributed to governments’ attempts to skirt statutory and constitutional debt limits.

While such entities may considered, “independent” or “off-budget” in reality should an OBE default on its debts, the city, the state and the taxpayers are put at risk.

The lesson for state and local governmets looking to better manage their fiscal affairs: creating debts off-budget does not cause the risk of issuing debt disappear.