Harrisburg, Pa., will operate under a budget that does not include payments for debt service on outstanding incinerator bonds after the City Council Tuesday evening declined to override Mayor Linda Thompson’s budget veto.

A previous $64.7 million budget crafted under former Mayor Stephen Reed and approved by the council in December will now become the fiscal 2010 spending plan. That budget has a $3.8 million funding gap, Thompson said last week.

Neither the budget that Thompson rejected nor the current budget now in place allocates $32.7 million to meet 2010 debt obligations on $282 million of outstanding Harrisburg Authority resource-recovery facility revenue bonds.

Assured Guaranty Municipal Corp. insures $195.5 million of the outstanding incinerator debt. Thompson is working on a plan to sell city assets and possibly restructure outstanding incinerator debt to help meet its obligations, she said at a press conference last week.

The $32.7 million consists of $19.7 million of principal and interest payments and derivative costs, and $13 million to replenish the debt-service reserve, according to John Frey, senior managing consultant at Public Financial Management Inc., the Harrisburg Authority’s financial adviser.

Dauphin County, where Harrisburg is located, is the second guarantor on a portion of the incinerator debt. The county has budgeted $40.7 million in its fiscal 2010 budget to meet its debt obligations.

The city faces $10.5 million of principal and interest payments this year that it must pay on its own. Using $4.6 million of debt-service reserves would then leave $5.9 million of debt-service costs without a source of repayment, according to Frey.

The city’s next payment to investors is $425,000 due May 1 on Series 2002A bonds. It will owe another $315,000 on June 1 to investors of Series 2003F bonds. Additional 2010 payments to investors include $2.2 million due Sept. 1 on Series 1998A bonds and Series 2003A, B, and C bonds; $1.2 million due Nov. 1 on Series 2002A bonds; and $1.7 million due Dec. 1 on Series 2003F bonds.

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