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Conflict Looms Over Harrisburg

As Tuesday's public hearing nears on the proposed fiscal recovery plan for Harrisburg, many agree that regardless of whether Pennsylvania's distressed capital city files for Chapter 9 bankruptcy protection, getting all parties to look beyond their own interests is a major task.

"It's a substantial challenge," said David Black, president and chief executive of the Harrisburg Regional Chamber and Capital Region Economic Development Corp. "Keep in mind that Harrisburg is an MSA [metropolitan statistical area] of about 500,000 with a city population of about 46,000. This is a relatively small city."

"People have known each other for years," he said. "It's like a small town. There are long-term disagreements and short-term disagreements."

Vested interests include the city; surrounding Dauphin County; the Harrisburg Authority, which owns a municipal incinerator that is saddled with $220 million of outstanding debt; and bond insurer Assured Guaranty Municipal Corp.

There is also the Harrisburg Parking Authority, which operates parking garages the city may have to sell to pare down debt; and a neighboring incinerator agency, the Lancaster Solid Waste Management Authority, which has offered $124 million for the Harrisburg facility.

"We have to be able to come together," said Harrisburg City Council member Brad Koplinski.

Harrisburg in December entered the state's program for distressed municipalities, known as Act 47.

Two weeks ago, Novak Consulting Group of Cincinnati issued a 418-page report saying the city could run out of money in September. It urged Harrisburg not to file for bankruptcy, but instead to sell assets and leases to pay down incinerator debt and meet short-term liquidity needs.

Novak Consulting, in the report commissioned by the state Department of Community and Economic Development under the Act 47 program, called Chapter 9 "the least desirable alternative and an alternative that is likely to be expensive, time consuming and under the ultimate control and direction of the bankruptcy court. … It is generally accepted that Chapter 9 filings for municipalities the size of Harrisburg can lead to lengthy and expensive proceedings with uncertain outcomes."

Reaction ranged from negative to wait-and-see.

The City Council passed a resolution by a 4-to-3 vote last Tuesday to request Mayor Linda Thompson prepare paperwork for a bankruptcy filing. Koplinski introduced the measure.

Thompson still opposes a bankruptcy filing. "The recommended plan is a good start and I thank the Act 47 team for its thoroughness," she said.

Comptroller Dan Miller didn't like the Novak plan. "I haven't heard anyone who approves of it in any sense, and I don't think it will be approved by the City Council," he said.

Miller has said the city should consider filing for bankruptcy. "They say that bankruptcy is expensive and time-consuming. But what recommendations did they make that are not expensive and time-consuming?" he said.

Council President Gloria Martin-Roberts opposes a bankruptcy filing.

"I think it sends the wrong message to other parties, parties that we'd like to have come to the table," she said.

"I'll bet, though I'm not a betting person, that some of the four members who voted to prepare a bankruptcy filing didn't even read the Act 47 report," she added. "Act 47 is a plan we have to massage and review. It's a viable plan. I'm really comfortable with the plan, although I have a few issues with some of its contents, such as funding for public safety."

"But there's creative thought in this document," she said. "The people who wrote this report have been very open."

Some observers said the Novak report was short on specifics about what price the Harrisburg Authority can command from the Lancaster Solid Waste Management Authority and from New York investor Jacob Frydman, who has offered roughly $215 million for the garages through his White Acre Equities real estate holding company.

Julia Novak, president of Novak Consulting and the recovery plan coordinator, said asset and lease sales are in flux.

"There's a lot of negotiation going on; $124 million is the latest offer from Lancaster for the incinerator. The folks in Lancaster have made a comprehensive proposal," she said. "The city must ultimately decide. We are not their agents."

Authors of the Act 47 plan have until July 8 to amend their report. The recovery plan team also includes the Pennsylvania Economy League, Stevens & Lee PC, and former state House Speaker Robert O'Donnell.

Black, the chamber president, supports the Novak Act 47 recovery plan.

"I think some things need to be worked out in the implementation. There is not a lot of clarity in the lease or sale of the parking garages," he said, adding that there are also uncertainties about negotiations with the Lancaster solid-waste authority. "

"The report allows for some flexibilities, but they can be addressed," he said. "Any kind of five-year plan will not be followed to the letter. You need room to adjust and the Act 47 plan allows for that."

Black opposes a Chapter 9 filing. "Bankruptcy is not a plan, it's a tactic," he said. "Why not try 47 and avoid the costs of getting into bankruptcy?"

After Tuesday's public hearing, scheduled for 5:30 p.m. at John Harris High School, the council has 25 calendar days, or until July 23, to act on the recommendations. If it fails to implement a plan by then, Pennsylvania could withhold grants, loans, and payments to Harrisburg and its agencies, according to the state Department of Community and Economic Development.

The city could also feel heat from the legislature. Sen. Jeffrey Piccola, R-Halifax, introduced legislation calling for a state takeover of Harrisburg and other third-class cities that don't approve an Act 47 plan.

The state categorizes its cities in classes, or tiers, according to population. Pittsburgh and Philadelphia, for instance, are designated as first-class cities.

"It is clear from their public comments and reactions to the Act 47 plan that virtually every municipal official elected in the city of Harrisburg has taken an irresponsible position concerning the city's fiscal mess. These individuals are looking for bailouts, which should not be considered," Piccola said.

Piccola's comments drew a sharp response from Miller. "We find that outrageous," he said.

Miller also criticized Dauphin County, which filed a $37.4 million lawsuit against the city over missed incinerator payments. The Commonwealth Court of Pennsylvania reinstated that suit two weeks ago.

"The county should be trying to help the city, and they're doing the opposite," Miller said. "The truth is, this was a risky deal for investors, and if the county hadn't guaranteed the bond, or at least half of it, it wouldn't have gone through. They're just as culpable."

Reading Mayor Thomas McMahon, whose 88,000-population city entered Act 47 about a year ago, said entering the program was an effective wake-up call for his city.

"It is clear to me that our cities need not only to become more efficient and incorporate best practices into their operations, but also to become more proactive in advancing action at the state level," McMahon said in a guest editorial in Harrisburg's Patriot-News.

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