Pennsylvania’s last-minute plan to help its capital city meet a $3.3 million general obligation payment to bondholders last week is a “credit positive,” but Harrisburg needs “external support” to achieve long-term fiscal stability, according to Moody’s Investors Service.
Moody’s issued a report Monday on Gov. Edward Rendell’s decision to direct $3.6 million of state funds that Harrisburg was set to receive later this year to the city to pay a $3.3 million GO debt-service payment due Sept. 15 on Series 1997D and Series 1997F bonds.
Moody’s does not rate Harrisburg.
The threat of a potential GO default followed Harrisburg’s missed debt-service payments on $282 million of insured incinerator debt that it guarantees. The Harrisburg Authority issued the incinerator debt, but it does not have sufficient revenue to pay the bonds. The city’s fiscal 2010 budget does not include incinerator debt-service costs.
Mayor Linda Thompson is looking to close a $4.3 million shortfall before the end of the fiscal year, which is Dec. 31. Earlier this year, Thompson filled a $4.5 million deficit with spending cuts and hiring reductions.
The city could gain some insight from financial adviser Scott Balice Strategies.
The City Council Tuesday evening is set to discuss a $500,000 state loan, and $350,000 of state funds that would pay Scott Balice to help craft a debt refinancing plan for the city.
For months, Rendell has urged city officials to avoid entering into the state’s distressed municipalities program, called Act 47, or filing for bankruptcy. Leasing or selling assets could generate needed revenue to help address the incinerator debt.
Under Act 47, municipalities lose some control as a third-party administrator weighs in on city issues. When Philadelphia was facing severe fiscal challenges in the 1990s, the state created the Pennsylvania Intergovernmental Cooperation Authority to provide oversight of the city’s budget and borrowing plans. It still weighs in on Philadelphia’s budgets.
While Rendell prefers to keep Harrisburg out of Act 47, Moody’s believes the city needs additional help.
“The city will continue to be severely challenged, however, to come up with lasting budgetary solutions to its strained financial operations and the significant additional debt payments related to the incinerator without some form of external support,” according to a Moody’s report dated Sept. 20.
In regard to the Moody’s report, Thompson spokesman Chuck Ardo said that the city is focused on laying the groundwork for long-term fiscal health.
“We hope to have Scott Balice Strategies on board very soon to help the city develop a comprehensive, long-range plan to solve both its ongoing structural deficit as well as its fiscal obligation,” Ardo said.
The city’s next payment to bondholders of the Series 1997D and Series 1997F bonds is $5.32 million due March 15.
Before that, Harrisburg has a $305,952 payment due Nov. 15 on Harrisburg Redevelopment Authority bonds that it guarantees. The city also owes $356,379 on capital lease payments due Oct. 15. The city intends to meet its obligations on the HRA bonds and the capital lease payments, Harrisburg finance director Bob Kroboth said in an e-mail.
In regard to the incinerator debt, the Harrisburg Authority will discuss those obligations at its Wednesday board meeting.
It will be the first board meeting for the agency since late April, as a political standoff between Thompson and the City Council prohibited the board from having a quorum.
The council last week approved a third member in a six-to-one vote as the council decided it was time for the authority to conduct official business.
That political gridlock, along with long-time fiscal troubles, make Harrisburg’s situation unique.
“Credit deterioration can occur more rapidly for municipalities like Harrisburg, which were fundamentally weak ahead of the recession,” the Moody’s report said. “In rare instances, non-payment of debt service may occur when the political process breaks down. The combination of an ineffective political process, combined with Harrisburg’s weak credit fundamentals, contributed to the city’s current credit crisis.”
The authority’s board on Wednesday will discuss upcoming debt-service payments due Nov. 1 and Dec. 1 and also talk about swap agreements attached to the incinerator bonds, board member William Cluck said.
In looking at the incinerator debt, the city has a $1.2 million debt-service payment due Nov. 1 and a $6.2 million debt-service payment due Dec. 1. Those bonds are insured by Assured Guaranty Municipal Corp.
In addition, $35 million of zero-coupon bonds sold via private placement in 2007 to help finance the incinerator will come due on Dec. 15.
Those bonds are not insured, but Dauphin County, where Harrisburg is located, is co-guarantor on the debt. County officials have said that the county has budgeted for its obligations. Dauphin County backs most of the incinerator bonds.
TD Bank, trustee of the incinerator bonds, and Assured Guaranty last week filed suit against the city and the authority in the Dauphin County Court of Common Pleas. TD Bank and Assured want a receiver for the incinerator bonds and a court order to require the city to meet its obligations.