HARRISBURG, Pa. — While a state takeover of Pennsylvania’s capital city hovered after the City Council again voted against a financial recovery plan Wednesday, a more immediate crisis loomed in Harrisburg: where to get the cash to make a $3.3 million general obligation bond payment due in two weeks, and to make September payroll.
“The bond markets aren’t willing to touch this city with all the chaos and all the dysfunction that’s going on. No one’s going to run to our aid,” Mayor Linda Thompson said Wednesday night after the City Council, for the second straight month, rejected a workout proposed under the state’s Act 47 program for distressed communities.
Duplicating its 4-to-3 vote of July 19 against a rescue plan recommended by a state-appointed consultant, Novak Consulting Group, the council rejected a resubmittal by Thompson that contained a few tweaks, including a commuter tax, but was mostly the same document.
The consultant said the city would run out of money this month.
Thompson, who met last week with Gov. Tom Corbett, could ask the state to accelerate fire and pension payments. “We’ll see what our bondholders are going to do about the $3.3 million bond payment” due Sept. 14, she also said.
Harrisburg becomes the first Pennsylvania community to have rejected a plan under Act 47 since the program’s inception in 1987. In addition to a possible loss in state funding, Wednesday’s vote could also unleash lawsuits against the city, which had been on hold. Harrisburg has roughly $310 million in debt—five times its general-fund budget—mostly related to the runaway costs of an incinerator retrofit project. The city is also staring at $26 million in stranded debt.
“The state has the option to withhold funding pursuant to the Act 47 law,” said a spokesman for Pennsylvania’s Department of Community and Economic Development. “Additionally, there will likely be at some point some legislation at the state level.”
That legislation, filed by State Sen. Jeffrey Piccola, R-Halifax, whose district includes parts of Dauphin County, would impose a three-member panel—essentially a receivership—that would run any community that rejects Act 47. That bill was tabled in June but the General Assembly is expected to fast-track it when it reconvenes later this month. Gov. Tom Corbett has said he would sign the bill.
Piccola on Thursday morning called on Corbett to freeze state assistance pending approval of legislation for a state takeover of the city’s finances. "These locally elected officials have proven their inability to come to the table and compromise on a plan that is responsible for Harrisburg -- a plan that is fiscally sound and provides the necessary road to recovery addressing both the incinerator debt and ongoing structural budget deficit," Piccola said in a statement.
Bankruptcy options appear limited after a bill filed by Piccola two months ago that became law. It prohibits Chapter 9 filings by small-to-medium sized communities in Act 47.
Tom Kozlik, a director and municipal credit analyst at Janney Capital Markets in Philadelphia, suggested Act 47 might not have been the best fit for Harrisburg. “In Harrisburg you have a very heated political situation, but Harrisburg is also different, even without the politics. Act 47 was established to handle more basic fiscal distress and small structural deficits. That is not all that is ailing Harrisburg. There, you have the results of taking on too much enterprise risk.”
Kozlik called Act 47 a credit positive, but said its effectiveness is limited in helping a municipality regain its long-term viability. “Act 47 is set up as a kind of band-aid but it doesn't make you healthier. You need to have a long-term plan in place."
Thompson, visibly upset at the council in a post-meeting press conference, said the city is in crisis mode. “I have no specific action to take at this time. Right now we don’t have answers as to how the city is going to get the cash flow.”
The Harrisburg Parking Authority is willing to extend its leases on the city’s revenue-producing garages for another 10 years, thus providing $7.5 million. The council, in a separate vote Wednesday night, approved such a move, but the authority needs bank approval on a loan.
Bonds outstanding on the incinerator total roughly $220 million, while Harrisburg owes the balance to Dauphin County, bond insurer Assured Guaranty Municipal Corp. of New York, and the facility’s operator, the Harrisburg Authority. All three parties have lawsuits pending against the city.
The councilors voted the same way as on July 19. Brad Koplinski, Wanda Williams, Eugenia Smith and Susan Brown-Wilson voted against the plan, while Gloria Martin-Roberts, Patty Kim and Kelly Summerford sided with the mayor. Brown-Wilson participated by conference call.
Koplinski, the most vocal critic among the council dissenters throughout the process, said the plan lacked specifics and that Harrisburg taxpayers would bear too much of what should be a regional burden. Property taxes, sewer fees and water fees would spike for city residents, he added.
“It is a plan, yes, but it’s an unreliable plan. People need truth, not smoke and mirrors. It was smoke and mirrors that got us in trouble in the first place,” said Koplinski.
“The majority of the council made a reckless decision tonight. I’m shocked; I can’t believe it,” Kim said after the vote in a packed council chamber. “We’ve made a lot of enemies and things are going to get worse.”
Martin-Roberts, the council’s president, warned that a three-member state oversight panel would not be in Harrisburg’s best interests. “They are going to completely usurp the power and authority of this [council] and this administration, and it’s not going to be pretty.”
