Pennsylvania will provide its capital city Harrisburg with a $3.3 million advance, so that the city can meet an upcoming bond payment.

The idea behind this mini-bailout is that should one city default, then the borrowing costs could go up for many others. Yet it obviously sets up a dangerous precedent.

Bloomberg:

“We could not stand by and let the city default on these bonds,” Rendell, 68, who leaves office after this year, said in a news conference yesterday with Harrisburg Mayor Linda Thompson. “What we did today gives us breathing space.”

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The city faces $68 million in debt-service payments this year on loans it guaranteed to help the Harrisburg Authority retrofit a trash-to-energy incinerator built in the 1960s. That’s about four times what the city of 47,000 raises annually in property taxes, according to its budget. It has a deficit of at least $4 million for this calendar year, Thompson said.

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