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Harrisburg Rips Up Its Blueprint for Recovery

HARRISBURG, Pa. — The rejection by Harrisburg’s City Council of a financial recovery plan by a state-sponsored panel has Pennsylvania’s capital city scrambling.

On Tuesday, the council, in a 4-to-3 vote that epitomized the division in the community, turned away a blueprint aimed at reducing the city’s $300 million in debt related to a failed incinerator retrofit project.

Novak Consulting Group of Cincinnati had crafted the plan, offered under the state’s Act 47 program for distressed communities. Harrisburg enrolled in Act 47 last December, and its rejection is the first by a financially stressed Pennsylvania community of an Act 47 plan.

The ball now sits in Mayor Linda Thompson’s court. She must submit her own plan to the council by Aug. 2, with a public hearing to follow no later than 10 days thereafter. The council could vote on a new plan in late August.

Thompson admitted right after Tuesday night’s vote that she must mollify skittish creditors. The city has a $3.3 million general obligation bond payment due Sept. 15.

Lawsuits also hover. Dauphin County and bond insurer Assured Guaranty Municipal Corp. of New York have litigation pending against Harrisburg. While bonds outstanding on the incinerator total $220 million, the city also owes a combined $75.5 million to the county, Assured Guaranty and the incinerator’s operator, the Harrisburg Authority. The latter is conducting a forensic audit of the incinerator debt accumulation.

On Wednesday, Dauphin County commissioners said they were prepared to move forward with the lawsuit.

“The county will not either suspend or terminate [the suit] unless a plan is adopted and implemented,” Jeff Haste, Mike Pries and George Hartwick 3d said in a joint statement. The three, however, granted some wiggle room. “We stand ready to work with Mayor Thompson as she crafts an alternative proposal.”

Thompson had favored most of the Act 47 plan, which essentially recommended the city sell or lease its incinerator and revenue-producing assets such as parking garages, and avoid filing for Chapter 9 bankruptcy protection.

The mayor, in essence, must convert at least one member of the council, the majority of which nixed the very plan that she endorsed.

“Either she has to modify the plan so as to get one vote or get one vote to change without any modification,” said David Narefsky, a partner at law firm Mayer Brown LLP in Chicago. “Absent a different vote, there will probably be significant consequences.”

Pennsylvania, for instance, could cut several million dollars in annual funding for the city, and could withhold future capital improvement funds, loans, entitlements or grants.

Bankruptcy options could be limited, as a new state law prohibits cities of Harrisburg’s size from filing for Chapter 9 protection under the hammer of losing state aid. Harrisburg’s population is 49,000.

“The real big part is the state, possibly helping the mayor craft a new plan,” said Alan Schankel, managing director at Janney Capital Markets in Philadelphia. “The governor [Tom Corbett] seems to be low-key about it. But I don’t know him well enough and maybe he’s been working behind the scenes.”

Should the council reject Thompson’s alternate plan — she said earlier this week she might petition Dauphin County Court of Common pleas for a commuter tax or an increase in other taxes — what’s next is up in the air. “The Sept. 15 bond payment due is a big hurdle and if something doesn’t happen, there could be further state legislation or just a natural default,” Schankel said.

At Tuesday’s crowded, tension-filled meeting, council members and those among the public who favored the Act 47 plan feared the great unknown; opponents said Harrisburg would have had to bear an excessive burden if the plan were approved. Some favored imposition of a commuter tax, although the Dauphin County court would have to approve that.

“A commuter tax would spread the burden,” said council member Brad Koplinski, who voted no along with Wanda Williams, Susan Brown-Wilson and Eugenia Smith.

Patty Kim, who voted yes with council President Gloria Martin-Roberts and Kelly Summerford, said a tax on commuters who work in the city would hinder downtown growth and also add a further tax burden to Harrisburg residents. While commuters would have to pay a 2.5% tax, so too would residents, who now pay but 1%.

Kim called the extra 1.5% “a punch in the gut” for Harrisburg taxpayers.

Martin-Roberts, a Thompson political ally who chided her colleagues over what she considered obstructionism, was visibly angry after the vote, taken before a standing-room-only crowd in the tiny counsel chamber.

“I think we’re making a terrible mistake,” she said before pounding her gavel. “I want the citizens who championed this no vote to remember this date. Please don’t get amnesia, because it’s not going to be pretty in the city of Harrisburg.”

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