Harrisburg’s $56 million 2011 budget remained uncertain Friday afternoon as Mayor Linda Thompson continued to review the spending plan.
Thompson has said that she will not sign off on the budget as she believes it does not include certain mandatory expenditures. The mayor could let the budget pass without her signature, veto the entire spending plan, or line-item veto the measure. She has until Tuesday to make a decision or the budget becomes law.
Harrisburg is Pennsylvania’s capital city and has a population of 47,418, according to the U.S. Census.
Thompson met on Friday with City Council President Gloria Martin-Roberts and Vice President Patty Kim to discuss the issue. As of Friday afternoon, the mayor had yet to announce a decision.
“As of the moment, the amended budget as presented by City Council has serious flaws in that it has underfunded mandatory and contractual obligations,” said Thompson spokesman Chuck Ardo.
The City Council cut an additional $4 million from Thompson’s budget proposal in order to fund $4.3 million for general obligation debt service accidently left out of the mayor’s budget. Thompson wanted the city to sell land underneath three parking garages to generate the needed funds. The 2011 budget is smaller than last year’s $64.7 million spending plan.
Councilman Brad Koplinski said the council cut did not federal or state-mandated expenditures from the budget. The city can reallocate funds throughout the year or sell tax-liens, if need be, to address any pressing spending issue that may arise, he said.
Koplinski believes that Harrisburg, which is in the state’s distressed municipalities program called Act 47, should consider a possible Chapter 9 bankruptcy filing as the city looks at ways to regain its fiscal footing. Harrisburg has $282 million of incinerator debt that it has failed to make payments on.
“It’s a very responsible budget,” Koplinski said. “Our main goals were to keep police and firefighters, keep the fire station open, not raise taxes or water fees and not sell any land because we’re going to need assets as we go through Act 47, and potentially, Chapter 9.”
While the $56 million budget allocates for debt-service on general obligation bonds and other debt that the city makes principal and interest payments on, it does not include such costs for the outstanding Harrisburg Authority incinerator debt.
The city has pledged repayment of the incinerator bonds in the event that the authority fails to pay debt service. The incinerator facility does not generate enough revenue to replenish debt service reserve funds and meet payments to bondholders.
The authority in 2011 will owe $14.9 million in principal and interest payments on the incinerator bonds, according to the authority’s 2011 resource recovery facility budget. The budget also includes $860,000 for swap payments due this year.
Dauphin County, where Harrisburg is located, is second guarantor of the incinerator debt. It budgeted $7.9 million in its 2011 budget for debt-service costs on the bonds, according to Amy Richards, spokeswoman for the Dauphin County Commissioners.
That leaves $7.89 million due to bondholders that will be paid with debt-service reserve funds and/or payments from Assured Guaranty Municipal Corp., which insures most of the incinerator bonds, if debt-service reserve funds are insufficient.
In addition, the authority must replenish debt-service reserve funds for the incinerator debt, repay bond insurers for draws on insurance policies, and pay back bank and construction loans. Those obligations contribute to a $49.6 million deficit in the 2011 incinerator budget.
The next payment to bondholders is March 1 when $4.2 million of principal and interest is due on Series 1998A bonds and Series 2003A, B, and C bonds, according to the incinerator budget. Dauphin County does not guarantee those bonds.
Novak Consulting Group is leading a team of advisers to craft a fiscal recovery plan for Harrisburg. Novak Consulting may release that plan by mid-May. At the same time, Cravath, Swaine and Moore LLP is advising the City Council on a pro-bono basis on Act 47 and Chapter 9. The law firm is expected to give its recommendation to the council by March 31.
