Distressed Harrisburg, Pa., will not make its $3.4 million general obligation bond payment due this week, state-appointed receiver William Lynch announced.

Lynch's announcement was no surprise.

"As many have already surmised due to the structural deficit in the city of Harrisburg, the [GO] debt service payment will not be made for the next one due Sept. 15," Lynch said in a statement Tuesday morning. The city will use the funds instead to pay salaries.

"The appropriate notifications are being made by our counsel. The city will not be making the debt service payment but the bond insurer will do so," Lynch added.

Lynch warned last month that the city could run out of money by the end of September.

Ambac Assurance Corp., a division of Ambac Financial Group Inc., is Harrisburg's GO bond insurer.

This marks the second GO payment that Harrisburg has missed this year. In March, Lynch's predecessor, David Unkovic, missed $5.3 million worth of GO payments in late March.

Pennsylvania's capital city is reeling from $320 million of debt that it cannot pay, mostly in bonds tied to an incinerator retrofit project.

Alan Schankel, a managing director at Janney Capital Markets, sees no effect on the bond markets. "I think the last one was barely noticed and this one even less so. Look, Harrisburg is in a groove now. They missed several of these payments and they'll miss more of them as long as Ambac is there to pick up the tab."

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