HARRISBURG, Pa. — Harrisburg finalized its recovery plan, which erased $600 million of incinerator and other debt. Its receiver and plan coordinators lecture about the deal and academics cite the debt crisis as a case study.
Meanwhile, Pennsylvania's capital city still faces a $10 million structural shortfall, general obligation debt is high for its revenue, crime is still a problem, huge sinkholes are periodic and residents and commuters complain about parking rate hikes in the aftermath of a lease deal that was essential to the plan.
"We're trying to climb up a hill that's still there," said Neil Grover, the city solicitor under new Mayor Eric Papenfuse and the former City Council attorney and founder of the taxpayer group Debt Watch Harrisburg.
Clearly, Harrisburg is in a "what now" moment.
"The immediate crisis is over and we believe we're giving the city government the tools to manage effectively, but problems are there," William Lynch, the state-appointed receiver and retired Air Force general who closed the Harrisburg Strong plan late last year, said in an interview after a Widener School of Law conference on municipal distress. Lynch's tenure ended March 1 when the Commonwealth Court dissolved the receivership.
Lynch added: "It's possible to still screw up."
To that extent, public finance experts cite greater awareness about the need to think beyond immediate crisis management.
"Both the good and the bad have educated people about the nature of municipal distress and what the challenges really are and the causes of it," Bill Rhodes said in a Bond Buyer video. Rhodes is the public finance chairman for Philadelphia law firm Ballard Spahr LLP and the co-chairman of The Bond Buyer's
Rhodes said last year's Detroit bankruptcy filing generated headlines "because it's so big with the amount of debt involved." The Detroit case, he added, could help clarify the murky Chapter 9, the municipal provision of the federal Bankruptcy Code, and foster settlements outside Chapter 9.
"There's definitely a change in the market, although it's still a struggle," said Dean Kaplan, a managing director at Philadelphia's Public Financial Management Inc. and also a Baltimore symposium co-chairman.
"For many communities, there's a capacity problem, but people are also looking at what the longer term presents. We tell our clients that we provide projections, not predictions. Look, we know circumstances can change, but at least there's a rough framework in place."
Baltimore generated a buzz in 2013 by releasing a
"I've seen greater interest in long-term planning coming out of the recession," said Michael Nadol, a PFM managing director who has worked with Baltimore. "Communities found that experience very challenging. But you can combat future business cycles with more of a roadmap."
Mark Kaufman, the lead attorney for Lynch's recovery team in Harrisburg, said distress situations vary. "When you listen to the broader scope of how cities grapple with fiscal imbalance, you respect that every situation is different," said Kaufman, who heads the municipal reform and innovation practice at Atlanta's McKenna, Long & Aldridge LLP.
In Harrisburg, Lynch and his advisors set out to avoid Chapter 9. The City Council there filed bankruptcy in October 2011, but federal Judge Mary France nullified it one month later, citing a state law specifically banning Harrisburg from filing and the objections of then-Mayor Linda Thompson.
Lynch stared at a reservoir of trademark bitter political infighting among city and regional officials. "We agreed on no finger-pointing or name-calling. We never referred to a haircut. We considered ourselves advocates of a solution, not advocates of the creditors' side or the city's side. We recognized that the city's problem was the county's problem, and the region's as well."
That paid dividends, according Steven Goldfield, the lead financial advisor to Lynch's team.
"In the end, we worked with everybody. We knew if this was done in a consensual manner it would be far better," said Goldfield, a Media, Pa., attorney with Public Resources Advisory Group.
According to Goldfield, Harrisburg's first year of recovery has included moves to win back the good graces of the capital markets. Harrisburg has paid back Metro Bank ahead of schedule on a loan secured by the Wild West artifacts project, obtaining a tax-anticipation note commitment from Metro Bank and, importantly, resuming payment of general obligation bonds.
Harrisburg missed four straight GO payments, dating to September 2011 — and only made that one through a convoluted 10-year lease extension with the local parking authority that included an up-front payment. The authority sold taxable debt at a 10.75% coupon.
"The city making its GO payment is a big positive," said Fred Reddig, a state Department of Community and Economic Development official who post-receivership is coordinating Harrisburg's recovery under the state's workout program for distressed communities, known commonly as Act 47.
Next year, said Goldfield, Harrisburg and its agencies could look at bond rating improvements. For now, the city itself is still unrated.
Two weeks ago, union-owned Amalgamated Bank completed a $22 million refinancing agreement with the Capital Region Water public-works agency, formerly the Harrisburg Authority. Amalgamated in the past year has also backstopped deals in distressed Scranton, Pa., and Allen Park, Mich.
The deal marked the water system's first debt financing since it lost its investment-grade rating in January 2011. Moody's Investors Service later that year downgraded the authority to Ba3 with negative outlook from Ba1 and withdrew the rating on $70 million in Series 2008 water refunding bonds.
"We like the direction Harrisburg is going," Robert O'Brien, Amalgamated's senior vice president for public finance, said in an interview. "We like the environment of inclusion and collaboration the city has taken under General Lynch's direction."
The Harrisburg Authority's name change represents the rebranding of an agency long linked to questionable incinerator bond deals, financing overruns to which accounted for about $350 million of the city's debt.
Pennsylvania Attorney General Kathleen Kane's office is investigating those transactions. The authority in a January 2012 forensic report criticized itself for brushing off early warning signs about the deal. The report formed the genesis of state Senate hearings later that year.
Last May the U.S. Securities and Exchange Commission charged Harrisburg with securities fraud for providing misleading information about its deteriorating finances but neither fined nor prosecuted anyone. Harrisburg's finances were too wobbly for the SEC to assess any fine. City officials signed a cease-and-desist order.
Lynch called the saga of the incinerator, which sits on South 19th Street four miles from downtown, "an ugly story that goes back decades."
The Lancaster County Solid Waste Management, which bought the trash burner and funded the purchase with a $130 million bond sale in December, renamed it the Susquehanna Resource Management Complex.
Goldfield said the need for rebranding extends far beyond Harrisburg. "We have to think about retooling these cities. Detroit was the Motor City and now it's not."
Reddig praised Pittsburgh's transformation from a steel city to an educational and medical hub. The city, whose bonds were junk 10 years ago, has since had a series of rating upgrades.
"When you rebuild you have to make sure you have a viable middle class and you have to build on the assets of the community," he said. "With 'eds and meds,' Pittsburgh has done an excellent job retooling. They've done partnerships, [research and development] and the Google expansion. We look to do the same in Harrisburg."
Pittsburgh Mayor Bill Peduto, whose first act when taking office in January was to request the state to keep it under oversight, is working out a long-term arrangement with the city's many nonprofit organizations.
Roughly half the land in Harrisburg is tax-free, much of it state property.
PFM's Nadol said Moody's Investors Service accurately portrayed a "new stable" in its outlook for local governments last December.
Moody's, which said pressured sectors — cities, counties and school districts — are clustered in the Northeast and Midwest, maintained that credit risks are more predictable and that municipalities have lowered costs and expectations amid limited resources.
"But in doing so, it acknowledged there's not a return to any pre-recession dynamic," said Nadol. "Things are finally not getting worse, but they're not getting much better."
