HARRISBURG, Pa. — Harrisburg, Pa., Mayor Linda Thompson yesterday delivered her first state of the city address, pledging to work with stakeholders to tackle $282 million of outstanding incinerator debt and bring Pennsylvania’s capital city into fiscal solvency.
The mayor’s speech came as the Harrisburg Authority, the issuer of the resource-recovery facility revenue bonds, said it will miss a $425,000 payment on May 1 to holders of Series 2002A bonds, according to Michele Torres, the authority’s executive director.
“The city will not be able to make the May 1 payment due to its current cash position,” Michael Holmes, chief of staff for Thompson said in an email. “We are currently seeking forbearance agreements in lieu of this payment.”
There is no debt-service reserve fund for the Series 2002A bonds. Assured Guaranty Municipal Corp. insures the debt.
The city guarantees all of the $282 million of outstanding incinerator debt, but the fiscal 2010 budget does not include debt-service payments on the recovery facility bonds. The city did allocate $12 million this year for its general obligation debt-service costs.
While Dauphin County, where Harrisburg is located, is the second guarantor on roughly 40% of the $282 million of incinerator debt, it is not obligated to pay the Series 2002A bonds, according to Torres.
“I’m reflecting on that particular account, that there’s zero debt-service reserves,” she said in a phone interview.
Torres stressed the agency is obligated to replenish certain debt-service reserves before it can allocate money to investors.
AGM spokeswoman Ashweeta Durani declined to say whether the insurer or the city will meet the May 1 payment.
“We continue to work with all parties to the transaction and as always, investors in the bonds can rely on AGM’s guaranty of scheduled payments of principal and interest on the bonds when due,” Durani said in an e-mail.
After May 1, the next payment to investors of the Series 2002A bonds is on Nov. 1 for $1.2 million. The remaining recovery facility bond series — Series 1998A and Series 2003A-F — either have enough debt-service reserve funds to meet investor payments through December, and-or the county guarantees those bonds. Dauphin’s fiscal 2010 budget includes $40.7 million for recovery facility debt-service costs.
Torres said she is confident that officials will resolve the incinerator debt troubles before 2011, when the remaining reserves will dry out. “We’re concentrating on dealing with this issue now,” she said. “There will be a solution this year.”
The authority, the city, the county, and AGM are currently working on a potential forbearance agreement that would give the city a set period of time to map out a plan to pay down the $282 million of debt.
Thompson yesterday said that strategy may involve debt restructuring, selling city assets to pay down a portion of the bonds, and a potential rate increase to generate more revenue. Both Thompson and Torres declined to pinpoint when officials might finalize that agreement, though both said it would be soon.
After her speech to the Harrisburg Regional Chamber, the mayor, who took office in January, said she and her staff are reviewing a draft of the forbearance agreement and are seeking more than 90 days to craft a repayment plan.
“The proposal was 90 days, but we’re optimistic about getting longer than 90 days because there’s no way we can get everything up and done by 90 days,” Thompson told reporters. “I think it’s a matter of giving us time to get a plan in effect.”
Recovery facility bond proceeds helped finance major upgrades to the incinerator plant. According to Moody’s Investors Service, which rates Harrisburg at the below-investment-grade B2 level with a negative outlook, the projects ran over budget and were not completed on time. The authority in 2008 did seek a $100-per-ton rate increase for incinerator users, but a court decision set that increase to $1.58 per ton.
Thompson pointed to the different rates that city and county residents pay to use the incinerator.
“Harrisburg city residents pay $200 per ton for waste disposal, while Dauphin County pays only $50 per ton for the same service,” she said in her speech. “That’s a four-to-one cost ratio currently being borne by city residents. There must be equity.”
Along with the incinerator debt, the mayor is also working on bringing the city’s spending in line with revenues. That may include possible layoffs and contract negotiations with unions. Personnel costs account for 70% of the operating budget, Thompson said. She stressed the city must move forward to “a new era” of fiscal responsibility in which a leaner, smaller government meets the needs of its citizens.
Long-term goals include revitalizing neighborhoods beyond the city’s downtown area to promote business growth and help increase the city’s tax base.