Moody’s Investors Service placed under review for possible downgrade Monday a combined $86.4 million of Harrisburg Authority water bonds and Harrisburg Parking Authority revenue bonds because the city could enter Pennsylvania’s distressed communities program.
Moody’s rates $68.4 million of Harrisburg Authority Series 2008 water refunding bonds A1 and $18 million of Parking Authority Series 2007T revenue bonds Baa2.
Harrisburg can tap into parking and water revenues, if necessary, because the systems have an “open loop” fiscal structure in which excess funds are directed into the capital city’s coffers.
“The Parking Authority’s and water system’s open loop flow of funds, with annual operating surpluses flowing to the city, brings into question whether parking or water system financial operations could be weakened or disrupted, even temporarily, by continued stress at the city, including actions that could be taken by an Act 47 coordinator or a federal bankruptcy judge,” according to a Moody’s report.
Last week, Mayor Linda Thompson announced that she had applied to the state to enter the city in the Act 47 distressed communities program due to $282 million of outstanding incinerator debt that the city cannot pay.
The Harrisburg Authority sold the incinerator bonds and the city guarantees the debt.
The incinerator facility has not generated sufficient revenue to pay down the bonds. The city did not include incinerator debt-service payments in its current-year budget.
Neither Harrisburg nor the incinerator bonds carry underlying ratings.
If the state approves the Act 47 submission, a financial consultant will work with the mayor and the City Council to develop a fiscal recovery plan. The outside financial adviser and city officials will also examine a possible bankruptcy filing among Harrisburg’s various options.
“The review will focus on potential financial and legal implications of the city of Harrisburg’s continued financial stress for Harrisburg Parking Authority and Harrisburg Authority’s water system bondholders,” the Moody’s report read. “It will also consider the implications of an Act 47 declaration of distress or a Chapter 9 bankruptcy filing by the city.”
Moody’s anticipates completing its review in 90 days.