Harrisburg’s intention to skip general obligation bond payments totaling $5.3 million that are due Thursday have bond market and other observers wondering what will happen next in Pennsylvania’s capital city.
Some say the move by state-appointed receiver David Unkovic is proof that the city is, in fact, bankrupt, while others see Unkovic maximizing his options while preserving cash for essential services such as police and fire.
Harrisburg is already mired in about $310 million in debt related to a costly incinerator retrofit project.
Its overall debt could reach about $450 million, including structural deficits and obligations for a minor league baseball stadium and a $40 million of guaranteed and unfunded debt coming due beginning in 2016 for bonds related to the Strawberry Square downtown mall.
Unkovic’s proposed recovery plan involves valuing saleable assets, including the incinerator and money-making parking garages, before negotiating with stakeholders. They include employees and unions as well as guarantors of debt that include incinerator bond insurer Assured Guaranty Municipal Corp., GO bond insurer Ambac Financial Inc. and Dauphin County.
According to Unkovic, five companies have submitted statements of qualification for the incinerator, including the Lancaster County Solid Waste Management Authority, which last year offered $124 million without assumption of debt. Fourteen companies have submitted similar statements related to the parking garages.
Additionally, Harrisburg has received five statements from parties interested in managing the water, wastewater and stormwater systems.
A state law provision that prevents distressed cities of Harrisburg’s size from filing for bankruptcy expires on June 30, which could give Unkovic leverage in negotiations. “I can’t imagine David Unkovic watching for the clock to tick to July 1, but bankruptcy is something he will have in his pocket,” said Alan Schankel, a managing director at Janney Capital Markets in Philadelphia.
Unkovic, announcing that the city would withhold bond payments, said doing so “ensure that vital and necessary services such as police and fire are maintained.”
His comments come during a sharp spike in crime that has stretched from Harrisburg’s rougher neighborhoods to the downtown Restaurant Row. Recent incidents included the shooting death of a cab driver in broad daylight, and the robbery at gunpoint of state Rep. Jaret Gibbons, D-Franklin Township, and two aides a couple of blocks from the state capitol building.
Mark Schwartz, the Bryn Mawr, Pa., attorney who represented Harrisburg’s City Council in its Chapter 9 filing — which a federal judge invalidated in November — said this week’s default came as no surprise. “Harrisburg has been and remains to be the perfect candidate for bankruptcy. The rest is all an incredible waste,” Schwartz said.
“You have to say at this point, what is in the best interests of the city, to strip it of its assets and go into bankruptcy, or to go to bankruptcy with the assets,?” he said of Unkovic’s plan.
Meanwhile, Schwartz is continuing with his appeal of the bankruptcy dismissal by Judge Mary France, and the subsequent upholding of France’s ruling by Judge Sylvia Rambo. In a filing this week with the U.S. Court of Appeals for the Third Circuit in Philadelphia, Schwartz said France’s refusal to hear his appeal was abuse of discretion and Rambo’s summary dismissal was in error. He expects a briefing schedule shortly.
The citizens group Harrisburg Hope will host an open forum about the recovery plan at 6 p.m. Thursday at the Midtown Scholar Bookstore in downtown Harrisburg. Mayor Linda Thompson and City Council Vice President Eugenia Smith will also serve on the panel, according to moderator Alan Kennedy-Shaffer, a local attorney and president of Harrisburg Hope.