Harrisburg might receive legal help from Pennsylvania as the capital city fights off a lawsuit that could force it to raise revenue to repay $282 million of outstanding incinerator debt.
Judge Charles Brown last week in Dauphin County Court postponed a hearing on the issue to Jan. 21 in order to give the Department of Community and Economic Development time to weigh in on the case, if it chooses to participate, according to lawyers who were present at Wednesday’s conference with the judge.
Harrisburg has $282 million of outstanding incinerator debt. It did not pay $55 million of principal and interests costs due in 2010 on the debt, including a $35 million final payment for notes due Dec. 15. Those payments would have taken up nearly all of Harrisburg’s 2010 budget, which is $65 million.
The city and Dauphin County guarantee the debt. The county and Assured Guaranty Municipal Corp. have been making payments to bondholders.
Joseph and Jacalyn Lahr in March joined Dauphin County’s ongoing lawsuit against Harrisburg. Under the state’s local government unit debt act, the plaintiffs are seeking to direct the city treasurer to pay Harrisburg’s debt-service obligations before any other city operating expenses are met. The Lahrs are now the main plaintiffs in the case. Dauphin County pays for their legal fees, according to Charles Zwally, an attorney at Mette, Evans & Woodside who is representing the plaintiffs in the case.
DCED Secretary Austin Burke last week approved Harrisburg’s application to the state’s distressed municipalities program, called Act 47. It allows the state to select an outside financial consultant to help the city develop a fiscal recovery plan, which would include repayment of the incinerator bonds.
If the court upholds the Lahr suit, that would limit the city’s options in creating a fiscal stability plan. DCED spokeswoman Jamie Yates declined to provide specific measures that Burke might take to help Harrisburg with the lawsuit, but said Burke will move forward to assist Harrisburg.
“The secretary has been clear that the lawsuit poses a significant risk to the city’s financial situation which warranted the declaration of distressed status,” Yates wrote in an e-mail. “DCED has been actively monitoring the litigation and will be proceeding in a manner which protects the city’s rights under Act 47.”
Forcing Harrisburg to pay all debt-service costs first could prompt the city to raise revenue through property taxes or other tax or fee increases to generate enough revenue to meet other necessary operating costs.
Thomas Schmidt, attorney at Pepper Hamilton LLP, is representing Harrisburg and city Treasurer Paul Warnbach in the suit. He said the debt act protects bondholders and does not include other city obligations.
“Act 47 is more equitable and more rational about recognizing the city’s revenue status and its expenditure obligations rather than simply sweeping all the revenues into one pile and directing them all to a sinking fund for the benefit of bondholders,” Schmidt said.
The Harrisburg Authority issued the incinerator debt but the facility has not generated enough revenue to pay principal and interest on the bonds.