Harrisburg Council Rejects Selected FA Firm

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HARRISBURG, Pa. — Scott Balice Strategies will not advise the city of Harrisburg on its $282 million of incinerator debt—unless the firm wants to go through another request for proposals process.

Instead of approving $850 million of state loans and grant money to pay Scott Balice to create a debt restructuring plan for Harrisburg, its City Council Tuesday evening struck Scott Balice from the resolutions. In order for Pennsylvania’s capital city to use the $850,000 it will have to once again search for a financial adviser and select that firm “through a new process fully involving City Council and specifically approved by a majority vote of city council,” the amended resolution reads. Another amendment capped the total amount of funds for outside financial advice at $870,000.

Members also approved a measure to allow the City Council to find outside professionals to advise Harrisburg on filing a possible Chapter 9 bankruptcy and also entering into the state’s distressed municipalities program, called Act 47.

The meeting was another example of the city’s political friction. During the meeting, Mayor Linda Thompson urged the council, in vain, to approve funds for Scott Balice. Some council members do not believe that Thompson’s selection of the firm was open and transparent. They want the entire city council to participate in the selection and appointment of an outside financial consultant. Council President Gloria Martin-Roberts was part of the administration’s selection team that picked Scott Balice.

Gov. Edward Rendell earlier this month extended to Harrisburg a $500,000 loan and $350,000 of grant money to pay Scott Balice to help the city address its $282 million of outstanding incinerator debt and get Harrisburg’s finances back in order. Rendell also expedited $3.6 million of payments that the state would have paid  the city later this year in order for Harrisburg to meet a $3.3 million general obligation payment on Sept. 15 and avoid a default on its GO debt.

Harrisburg doesn’t have a lot of time. The city did not include incinerator debt-service payments in its fiscal 2010 budget. Fiscal 2010 began Jan. 1. A $1.2 million payment to bondholders of Series 2002A incinerator bonds is due Nov. 1. Another $35 million is due Dec. 15., though Dauphin County is co-guarantor on those bonds. The county’s budget includes that $35 million payment.

“The process continues to stall,” Roberts said during the meeting after the amended resolutions passed in a five-to-two vote. “We continue to get further and further behind as a city. We continue to have people that want to keep chaos going, for whatever reason.”

The question now is whether Rendell would still allow Harrisburg to use the $850,000 for another advisory firm, or stipulate that the funds can only be used to pay Scott Balice. A Rendell spokesman did not immediately respond to a request for comment.

Thompson spokesman Chuck Ardo expressed his doubts that the governor will allow the funds to be used for a different firm.

“I think that you can’t take the state funding for granted for a different financial adviser,” Ardo told reporters after the meeting. “Part of the reason that the state funding was made available was because of the confidence that the people of the state -- both [the Department of Economic and Community Development] and the governor’s office -- had in the team that Scott Balice Strategies brought to the table.”

In addition to the use of state funds for an outside financial consultant, the council will now begin an RFP process to find professionals that can advise the city council on a potential bankruptcy filing or entering into Act 47. Roberts, who has spoken out against a bankruptcy filing, said that the issue will be placed in the administration committee, which she chairs.

Councilman Brad Koplinski filed the resolution to seek outside bankruptcy and Act 47 advice. He and other council members believe the city should examine bankruptcy along with other debt-restructuring proposals and strategies to get the city out from under the $282 million of outstanding incinerator debt.

“The only folks who really know the ins and outs -- the benefits and burdens of Act 47 and a Chapter 9 bankruptcy -- are qualified professionals who, I believe, should be able to talk to council,” Koplinski said during the meeting. “We in turn will talk to the public about the benefits and burdens, pit falls, good and bad things of these two options.”

In late April, several officials and outside professionals testified before the council regarding Chapter 9 and Act 47. Those speakers included Fred Reddig, executive director of the Governor’s Center for Local Government Services, Harrisburg Controller Dan Miller, Perry Mandarino, who works in PriceWaterhouse Coopers’ restructuring and recovery practice, and J. Gregg Miller, of counsel at Pepper Hamilton LLP. Miller represented Westfall Township, in its Chapter 9 bankruptcy filing last year. Westfall Township is in northeastern Pennsylvania.

To pay for such services, Koplinski has said the council should look towards the upcoming fiscal 2011 budget for potential funds. Roberts said she does not believe the funds that Rendell offered earlier this month could go towards a bankruptcy or Act 47 specialist.

“I have no idea how we’re going to pay for this,” she said. “The state has no intention of allowing this city council to use these grant dollars to fund this initiative.”

The Harrisburg Authority issued the incinerator bonds but the facility does not generate sufficient revenue to pay down the bonds. Assured Guaranty Municipal Corp. insures the bonds. The city guarantees all of the bonds while Dauphin County is co-guarantor on much of the debt.

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