Harrisburg Bonds May Incinerate Value – 41473EFH9

The Bottom Line

As Warren Buffett wisely notes, “When the tide goes out, you get to see who is swimming naked.” In Harrisburg’s case, we’re seeing a whole lot of naked fiscal irresponsibility.

 

Harrisburg bonds (41473EFH9) are a mess due to what appears to be wasteful spending. Is this representative of a nationwide muni default? In a word – no. So, what happened in Harrisburg?

The Incinerator Debacle

The Harrisburg incinerator story is a textbook case of municipal waste – both literal and financial. From day one, this mechanical engineering nightmare has been:

• Plagued by environmental compliance issues
• Subject to multiple costly refits
• Drowning in unsustainable debt
• Burdening citizens with roughly $10,000 per person in obligations

Market Response

The bond (CUSIP: 41473EFH9) hasn’t traded since November 2008 – no surprise given the municipality’s July 2009 material events notice. Smart money is staying far away from this dumpster fire. Here is the list of this bond’s trades and what other investors paid. 

 

2025 Update: The bond started trading again in 11/30/2010.

The Reed Legacy: A Museum of Fiscal Mismanagement

Former Mayor Reed’s 24-year reign reads like a cautionary tale:

• Built a “national” Civil War museum despite Gettysburg’s proximity (45 minutes away)
• Planned five additional museums including an inexplicable Wild West theme
• Personally handled millions in artifact purchases
• Recovered less than 20 cents on the dollar when forced to sell
• Allegedly decorated his office with city-purchased artifacts

As our source notes: if a small business owner pulled these stunts, the IRS would have a field day. But with public money? Just business as usual.

The Perfect Storm

This self-inflicted crisis is compounded by:

• Unsustainable platinum healthcare benefits
• Ballooning pension obligations
• Stressed city finances
• Rising taxpayer burden
• Complete absence of proper auditing oversight

Broader Implications

Is this the canary in the municipal bond coal mine? Not exactly. While muni rates remain low, Harrisburg’s problems stem from:

• Uniquely poor facility management
• Excessive local spending
• Bad timing with economic downturn

What’s Next?

The fallout could include:

• Potential Chapter 9 bankruptcy
• Union contract renegotiations
• Mass layoffs
• Frozen interest payments
• 50%+ bond price drops
• Private equity vultures circling

Bahhh and good luck to all.

For current trading data on this bond, visit our detailed analysis page.

Further Reading: See WSJ’s excellent article “Muni Threat: Cities Weigh Chapter 9” (2/18/10)