Yesterday, the city council of Harrisburg, PA, rejected the state's plan for it to pay back its $300 million in incinerator debt (which does have a general-obligation guarantee from the city) in full.
The most intriguing part of the pre-vote debate?
Local elected officials are coming closer and closer to seeing a writedown of some of the unpaid incinerator debt as a real option. As city councilwoman Susan Brown-Wilson said, "The bondholders took a risk, ladies and gentlemen. When you take a risk on Wall Street, guess what. Sometimes it's a loss."
From the perspective of investors, this change in borrowers' attitude is a big deal. On new sovereign and municipal debt, investors will have to consider not only the capacity of borrowers to pay -- that is, will they have the money? -- but also the borrowers' political willingness to pay. (Investors were supposed to be doing that anyway, but, hey.)
And investors will also have to consider how these two things are related. Both places may have the capacity to pay, for example, or at least pretend to have the capacity to pay for a few more years -- but only at the political and social cost of lower economic growth for years, if not decades.
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