Harrisburg’s City Council Monday evening was set to hear from outside professionals and government officials regarding Pennsylvania’s municipal financial distress program in addition to information on bankruptcy filings.

The council’s administration committee was scheduled to hold the meeting. All seven council members sit on the panel.

The panel of 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, according to the meeting agenda. J. Gregg Miller served as the attorney for Westfall Township, in the northeastern part of the state, in its Chapter 9 bankruptcy filing last year.

The city guarantees roughly $282 million of outstanding resource-recovery facility debt issued by the Harrisburg Authority, which oversees the incinerator facility built with bond funds. The city on May 1 will miss a $425,000 payment to bondholders of Series 2002A bonds, said Michael Holmes, chief of staff for Mayor Linda Thompson. There is no debt-service reserve fund for the Series 2002A bonds. Assured Guaranty Municipal Corp. insures much of the incinerator debt, including the Series 2002A bonds.

For more than a year, the incinerator has not generated sufficient revenue to meet debt service payments to investors. Dauphin County, where Harrisburg is located, is a co-guarantor on much of the incinerator debt.

The authority, the city, the county, and Assured Guaranty are currently working on a potential forbearance agreement that would give Harrisburg a time frame for developing a plan to address the $282 million of debt. That may include selling or leasing city assets, raising facility fees, and debt restructuring.

During a legislative session Tuesday evening, the council is set to consider final votes on two resolutions that would establish conditions for selling or leasing city assets to raise money for paying what it owes on the bonds, according to the session’s agenda.

J. Gregg Miller in an interview Monday said he planned that evening to present to council members the pros and cons of filing for bankruptcy. Both the mayor and council president Gloria Martin-Roberts have said they do not believe Harrisburg should consider bankruptcy. Council member Susan Brown-Wilson, who chairs the budget and finance committee, and Controller Miller have said the council needs to hear what a bankruptcy filing would entail so that the panel understands all of its options.

“In general terms, the biggest pro of Chapter 9 is that the bankruptcy court has the power to force creditors to accept a reasonable settlement,” attorney Miller said. “Whereas the various state laws on this subject, including Pennsylvania’s [municipalities financial recovery] law which is called Act 47, although it encourages negotiation with creditors to reduce their debt if the municipality can’t pay the debt in full, it doesn’t have legal power to do that. But the federal bankruptcy court does have the power to do that.”

The downside to Chapter 9 is that it is costly, time consuming, and local governments can never be sure exactly what the outcome may be, the attorney said.

In addition, investors may lose confidence in a borrower that has filed for bankruptcy. Harrisburg’s credit rating is already below-investment grade. Moody’s Investors Service rates the city B2 with a negative outlook.

Pennsylvania’s Reddig said that on Monday evening he would outline the state’s Act 47 process to the council. The city is already in the program’s early intervention phase, which sets the stage for possible entrance into the state oversight program. As part of that phase, consultant Management Partners Inc., earlier this year crafted a report that suggests how the city could improve its finances through spending reductions, efficiencies, and the sale or lease of city assets.

Reddig said he would encourage council members to move forward implementing recommendations from  the Management Partners report.

“It behooves any community that has made an investment in the early intervention process to follow through with it,” he said.

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