While a state takeover looms for Harrisburg after the City Council on Tuesday night again rejected a financial recovery plan, Pennsylvania’s capital will be able to meet its general obligation bond obligations and make payroll for the rest of the year.
For the third time in three months, the council rejected the plan under the state’s Act 47 program for distressed communities, again by a 4 to 3 vote. But the council, voting separately, approved a $7.4 million, 10-year lease extension with the Harrisburg Parking Authority regarding three garages.
Borrowing the cash to pay Harrisburg is expected to cost the authority up to 10.75%, officials said, citing the city’s tenuous financial situation. The lender has not yet been identified.
The upfront payment will enable the city to make general obligation bond payments and pay workers through December and sidestep default. Two GO payments totaling $3.3 million were due Wednesday.
Meanwhile, the state said it would advance $2.6 million in pension aid.
Harrisburg, with a 48,000 population, is staring at $300 million in debt related to cost overruns in an incinerator retrofit project. Lawsuits may re-emerge over missed bond payments. The Harrisburg Authority, which operates the incinerator, Dauphin County and bond insurer Assured Guaranty Municipal Corp. all have litigation that was on hold pending acceptance of a recovery plan.
The city is also reeling from storm damage after the Susquehanna River overflowed into many sections of the city.
“Even if the state does take over the city, the mayor at least wants that GO bond covered to be assured that her people — the fire and police — are paid through the end of the year,” said authority vice president Corky Goldstein, a local attorney who has favored the Act 47 plan.
Mayor Linda Thompson lashed out at the same four council members who voted against the Act 47 plan: Brad Koplinski, Susan Brown-Wilson, Eugenia Smith and Wanda Williams. Thompson had attended the meeting, but stormed out of the council chambers following the vote at City Hall.
“The actions of council members Koplinski, Brown-Wilson, Smith and Williams, since we have begun the Act 47 process and to this very day, have demonstrated their incompetence to hold public office and desire to render the city of Harrisburg ungovernable,” Thompson said at a press conference. She said the four harbor “short-sighted and irresponsible delusions of power.”
Rejection of Act 47 means Pennsylvania could deny Harrisburg grants, loans and other funding means, said the Department of Community and Economic Development. Gov. Tom Corbett’s administration could also appoint a three-person panel, to run Harrisburg.
Legislation authorizing such a panel will go before the state Senate when it reconvenes next week.
City Council President Gloria Martin-Roberts, Patty Kim, and Kelly Summerford again voted yes. Martin-Roberts called for a revote after the council rejected the plan on Aug. 31.
“It would have been nice to control our own destiny,” she said.
The council also voted against it July 19, after its recommendation by state-appointed Novak Consulting Group of Cincinnati.
After that, Thompson became the Act 47 coordinator by law.
“It seems more likely that you will see a three-person receivership panel,” according to Brian Fraser, a partner at Richards Kibbe & Orbe LLP.
A state law passed this year effectively restricts the city from filing for Chapter 9 bankruptcy protection.
Harrisburg’s status as a state capital sets it apart on the list of distressed communities that includes Central Falls, R.I., Jefferson County, Ala., and Vallejo, Calif.
“You have elements of Central Falls, Jefferson, and Vallejo all coming together in Harrisburg,” Fraser said.