Cash-strapped Harrisburg, Pa., could miss a March 1 debt-service payment of $2 million on debt backed by Pennsylvania’s capital city, according to city Controller Dan Miller.
The city is the first guarantor on $282 million of resource recovery facility bonds that the Harrisburg Authority, which owns the city’s water and solid-waste operations, sold in 2003 to help finance upgrades to the solid-waste facility. Dauphin County, in which Harrisburg is located, is second guarantor on $150 million of the $282 million of debt, Miller said.
“What we’re seeing right now — as far as cash flow — I don’t know how we’ll be able to make this March debt-service payment, which I don’t think the Harrisburg Authority is going to make,” Miller said. “I’m assuming they’re not going to make it. So, if it comes to us, I think it will be problematic for us to make it.”
Miller said principal and interest payments in 2010 on the RRF bonds will total $20 million. Of that amount, $5.9 million carries only a city guarantee and not a county guarantee, according to Moody’s Investors Service.
In addition to a potential non-payment, Miller, along with city councilwoman Susan Brown-Wilson, has said the city should evaluate its options for bankruptcy or distressed city status under the state’s Financially Distressed Municipalities Act, known as Act 47.
“I’m not advocating right now that we file for bankruptcy, but it does seem like a viable option that we definitely need to explore,” Miller said.
Mayor Linda Thompson has said that all options are on the table including bankruptcy, though filing for bankruptcy is not her first choice, according to spokeswoman Joyce Davis. Thompson took office last month.
The authority’s operating deficits in 2009 required Harrisburg and Dauphin County to pay principal and interest costs on the RRF bonds. In addition, the municipalities tapped into debt-service reserve funds to meet principal and interest payments in 2009, placing the bonds in technical default.
Last week, Moody’s downgraded Harrisburg to B2 from Ba2 and removed the credit from watch list for possible downgrade. The outlook is negative. The city has $575.8 million of outstanding debt as of Dec. 31, 2008, according to Moody’s.
“Despite [a] history of timely payment, the RRF’s various debt-service reserve funds are expected to be fully depleted in 2010, with some already depleted in 2009, and the city may not have sufficient funds to pay its guaranteed debt-service payments when due at various points in 2010,” Moody’s said. “The drawn DSRFs are not expected to be replenished, despite a requirement to do so in the various bond indentures, resulting in another technical default under the city’s RRF debt guaranty agreements.”
Further downgrades are possible if the city files for bankruptcy and fails to pay on direct or guaranteed debt obligations, according to the Moody’s report.
Along with $20 million of principal and interest payments, the city will need to pay $13 million to replenish the debt-service reserve fund, Miller said. In addition, the authority has a working capital loan of $35 million that will come due in December and is also guaranteed by the city, bringing total RRF bond costs in 2010 to $68 million.
Harrisburg’s City Council Saturday was set to vote on a revised fiscal 2010 budget that would address the RRF bonds. Options include property tax increases, sales of assets, and spending reductions, along with any formal considerations to file under Act 47 or bankruptcy.
