Harrisburg, Pa., will exit receivership on Saturday and proceed with less intensive state oversight.
Gov. Tom Corbett, Mayor Eric Papenfuse and other state and city officials confirmed the news at a City Hall press conference Wednesday, a day after Commonwealth Court of Pennsylvania Judge Bonnie Brigance Leadbetter approved the state's exit request in a
"After decades of financial difficulties and nearly three years of fiscal emergency, we pulled everyone together to develop consensual solutions and provide a path to fiscal recovery for the people of Harrisburg," said Corbett. "By working together, we overcame extraordinary challenges to create a sound plan for Harrisburg that did not include bankruptcy or bailouts."
Harrisburg, the 49,000-population state capital, has been under receivership since November 2011, shortly after the City Council's failed attempt to file bankruptcy.
In a form of aftercare, the city will operate in the Department of Community and Economic Development's workout program for distressed communities, known commonly as Act 47. DCED operative Fred Reddig will coordinate the recovery.
"The focus is now primarily on operational issues and assisting the Papenfuse administration in building capacity within the administration," Reddig said at Wednesday's meeting of the Municipal Financial Recovery Advisory Committee, which preceded Corbett's conference.
The meeting was the final one for receiver William Lynch, a retired Air Force general. "This is only the beginning," he said.
Leadbetter in September approved the city's so-called Harrisburg Strong recovery plan to erase its $600 million of debt. Ongoing implementation of the plan continues. Most recently, the city negotiated a contract with Capital City Paid Firefighter's Association IAFF Local 428 that reduced pension and health care benefits.
"This was not an easy path, but I believe it was the right path for the city and the people who live in it," said Steven Goldfield, the financial advisor to Lynch's team and an attorney at Public Resources Advisory Group in Media, Pa.
On Tuesday, the City Council by a 6-1 vote authorized spending up to $4 million of tax revenue anticipation notes, in what would mark the city's return to the capital markets.
According to Goldfield, the notes, commonly called Trans, should close early next week after bank counsel completes documents and the city signs them and files them with the DCED.
Goldfield said that while the city's financial picture is much stronger than at the same time last year, "the Tran is viewed as an insurance policy against unforeseen hiccups in the cash flow coming in." February is traditionally a slow cash-flow month for many cities because real-estate tax collections are weakest.
Harrisburg has repaid the Pennsylvania Infrastructure Bank and SunTrust Bank for accounts due in 2012 and 2013, respectively, and this week expects make the final payment on its loan from Metro Bank using the latest payment from last summer's auction of Wild West artifacts.
On March 15, the city will make its first general obligation bond payment -- for $4.7 million -- since September 2011. Harrisburg has missed four straight biannual GO payments.
The recovery plan hinged upon the sale of the city's incinerator to the Lancaster County Solid Waste Management Authority and a long-term lease of parking assets from the city and the Harrisburg Parking Authority to the Pennsylvania Economic Development Financing Authority. Bond sales for both closed in late December.
The deal also included some concessions from the main creditors of the incinerator debt, Dauphin County and Assured Guaranty Municipal Corp.
"Future City Councils and future mayors will have to manage the city effectively," Lynch said in a recent Bond Buyer interview at the state finance building in Harrisburg.
David Fiorenza, a Villanova School of Business professor and a former chief financial officer of Radnor Township, Pa., called the turnaround one of the quickest he has ever seen.
New challenges face the city, according to Fiorenza.
"It is time to now work on their branding, like other Pennsylvania cities have so well in the past 10 years," he said. "The number of nonprofits and tax-exempt properties will continue to be the ghost in this town that will not leave. That is one area that will continue to hold Harrisburg back with growing its tax base."
In one rebranding move, the City Council on Tuesday approved changing the name of the Harrisburg Authority, which owned the incinerator until its sale, to Capital Region Water. The state must approve the change.
Debt financing for cost overruns on an incinerator retrofit project accounted for about $363 million of Harrisburg's roughly $600 million of debt, and drove the city to financial distress. The U.S. Securities and Exchange Commission and Pennsylvania Attorney General Kathleen Kane's office are investigating the bond deals.
Harrisburg entered the Act 47 program in late 2010. But three times in 2011 the City Council, all by 4-3 votes, rejected a proposed recovery plan.
Councilman Brad Koplinski, who voted against the original plan, called the pushback essential to avoiding the state imposing what he called a "cookie-cutter" plan.
"The commonwealth realized that they had to respect this community and had to do better," said Koplinski, a Democratic candidate for lieutenant governor.
But Mark Schwartz, the Bryn Mawr, Pa., attorney who represented Harrisburg in its failed bankruptcy attempt late in 2011, said lawyers and consultants benefited excessively at the expense of city taxpayers. "Those who brought this upon Harrisburg got away scot-free," he said.
In September 2011, Corbett declared a state of fiscal emergency. One month later, the City Council hired Schwartz and filed Chapter 9 bankruptcy. But in November, Judge Mary France of the U.S. Bankruptcy Court for the Middle District of Pennsylvania in Harrisburg dismissed the filing, saying it contradicted a state ban on Harrisburg's filing and needed the consent of then-Mayor Linda Thompson, who had refused to agree.
Corbett appointed David Unkovic receiver in November 2011, but Unkovic abruptly quit four months later, citing pressure from pressure from lobbyists for major creditors and state and regional political figures.
In a handwritten resignation letter to Leadbetter, Unkovic said he found himself "in an untenable position in the political and ethical crosswinds."
Lynch succeeded Unkovic in May 2012.
According to Goldfield, Lynch "was instrumental in guiding elected officials, creditors and professionals of every stripe down the path of a consensual resolution of Harrisburg's fiscal crisis."
