Harrisburg, Pa., Mayor Eric Papenfuse Friday signed off a restructuring agreement for debt related to the 12-story downtown building known as the Verizon Tower, despite objecting to the deal.

He called for an investigation into the 1998 bond transaction that straddled the capital city with nearly $42 million of debt service on a $6.9 million borrowing.

"I feel the consequences of not signing it would be worse," Papenfuse said in a letter to Fred Reddig, the city's state-appointed recovery coordinator and special assistant for Act 47 and local government affairs at Pennsylvania's Department of Community and Economic Development. "This settlement agreement," said Papenfuse, "fundamentally means that the city's debt load is maxed out through 2033."

The Series 1998 bonds, which the Harrisburg Redevelopment Authority issued and former Mayor Stephen Reed crafted, were payable beginning in 2016, running through 2033.

The settlement is expected to reduce the city's total debt service to about $18 million, with the first payment of $500,000 due in 2017. It also moves about 800 workers into the tower, which Verizon Communications plans to vacate.

Verizon and its predecessor company, Bell Atlantic Co., has leased space since 1975. The building sits along Walnut Street across from the state capitol.

Bond insurer Assured Guaranty Municipal Corp., under the agreement, would provide $2.7 million in forbearance should the city need it. In addition, the city will realize an additional $600,000 annually from an increase in parking taxes and $48,000 per year from an increase in the local services tax.

Papenfuse, who took office last year, said he would turn relevant materials over to state Attorney General Kathleen Kane.

"While I cannot yet prove fraud, I have enough concerns about the legitimacy of the self-liquidating debt report and associated legal opinions," Papenfuse told Reddig. Kane herself is facing unrelated possible charges of perjury and abusing authority, based on recommendations by a grand jury.

On Tuesday, the City Council approved the settlement by a 6-0 vote. City controller Charles DeBrunner also favored the settlement.

Messages seeking comment were left with Reddig, DeBrunner and Assured Guaranty.

Council member Brad Koplinski called the deal "the third leg of the stool" of economic recovery in a city that nearly went bankrupt after an incinerator bond financing fiasco and other missteps left the city with more than $600 million in debt. "We're going nowhere without fixing this Verizon mess," said Koplinski, urging its passage.

Harrisburg in 2013 crafted a plan that included the sale of the city incinerator and a long-term lease of parking assets. The plan included the leasing of 200,000 square feet at the tower.

Moody's Investors Service warned last fall that the lease may not provide enough revenue to prevent a default by the city on its general obligation debt-service guarantee for the project.

Financial advisors worked with state officials, banks and Assured Guaranty for two years, navigating through such matters as arcane state laws and policies about what defines an empty office building.

The state Department of General Services was able to lease the tower for a base amount of $65 million over the 17 years - favorable terms for the city, given market conditions -- and the deal included an energy-savings provision that stands to free up money for the city on the back end of the arrangement.

Though the council vote for approval was unanimous, the bitter taste of a sour transaction remained.

"We've been asked to swallow another turd," said council member Susan Brown-Wilson.

Her colleague, Ben Allatt, called the 1998 transaction "the worst deal that the city has ever seen and made," He added: "The liability associated with it is just … it's almost criminal."

According to Papenfuse, the fundamental problem with the settlement agreement is that not enough money from the nearly $4 million-per-year DGS lease is being used for debt service on the 1998 bonds. He said Reddig and others pressured him to sign the deal without allowing him enough time to review the documents.

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