Judge OKs Harrisburg Recovery Plan
HARRISBURG, Pa. — A Commonwealth Court of Pennsylvania judge Thursday approved the financial recovery plan aimed at keeping Harrisburg, Pa. out of bankruptcy.
"The plan is confirmed," said Justice Bonnie Brigance Leadbetter, ruling from the bench. "This plan can succeed at giving Harrisburg a chance to go forward on a fiscally sound basis. A year and a half ago I was not too optimistic. Now I am highly optimistic."
Housekeeping matters such as City Council approval of transfers remain before Leadbetter officially signs off.
State appointed receiver William Lynch and his team want to price bonds for the recovery as soon as November, while market conditions remain favorable and before the city runs out of money.
Leadbetter heard no objections Thursday to an intricate 357-page plan called "Harrisburg Strong," which features the sale of the city incinerator — the source of more than half of the state capital's crippling $600 million-plus of debt — to the Lancaster County Solid Waste Management Authority, and a 40-year lease of city parking assets.
It also includes four years of a balanced budget and other measures designed to restore Harrisburg's reputation in the capital markets.
"The incinerator debt hung like a dark cloud over the city," Lynch, a retired Air Force general, said on the witness stand.
The deal also includes an agreement by general obligation bond insurer Ambac Assurance Corp. to let the city pay $17 million worth of past-due GO bonds over a stretched-out payment period.
Lynch and his inside team of lead attorney Mark Kaufman and financial advisor Steven Goldfield want to complete the related bond deals ideally by mid-November, while market conditions are favorable.
Wednesday's news that the Federal Reserve would not pull back on quantitative easing appears to have deflated the rise in bond interest rates for now, but the rates could rise again in a couple of months.
The announcement in June by Federal Reserve chairman Ben Bernanke that the Fed might pull back on its bond purchase program led to a spike in bond interest rates, forcing the Lynch team to renegotiate with AGM, Dauphin County and other major creditors.
On Thursday, attorneys for major creditor groups spoke in favor of the plan.
On Monday the City Council approved the incinerator and parking deals.
"Doing nothing was no longer an option," City Council attorney Neil Grover told Leadbetter. "There would have been long-term disastrous consequences."
Grover, though, acknowledged risk.
"A possible stream of revenues could go away," he said.
"We have to get the bonds priced and underwritten before the market gets away from us," said Goldfield, a senior managing director at Public Resources Advisory Group.
A further spike in bond interest rates could jeopardize how much major incinerator bond-financing creditors Assured Guaranty Municipal Corp. and Dauphin County receive, and make them skittish about the deal.
Both agreed to short-term cuts of up to 30%, though they could recoup money long-term under the consensus deal. AGM and Dauphin are in store for a combined $210 million upfront.
"There is a condition in the market. We have to watch the market," said Kaufman, a partner at McKenna Long & Aldridge LLP. "AGM and Dauphin need a cushion."
Kaufman added that all the moving parts — incinerator, parking, GO debt, for example — are intertwined. "Nothing takes effect unless all take effect," he said.
Gerald Cross, the executive director of the Pennsylvania Economy League, which works with cities and towns throughout the commonwealth, said Harrisburg could run out of money by January. Vendor patience has already been tested, he said.
"January could be a troubling month," he said. "Cash would come short. You could have some serious cash-flow problems for the city. The city would withhold certain bills or not pay vendors. Payroll would be next in line."
Harrisburg's City Council filed for bankruptcy in October 2011, but federal Judge Mary France invalidated it, citing state restrictions on Harrisburg filing under Chapter 9 as well as Mayor Linda Thompson's objections.
Harrisburg, with a 49,000 population, has been under receivership since November 2011.
Lynch, a retired Air Force general who succeeded David Unkovic as receiver in May 2012, announced in July that creditors had agreed to concessions.
Lynch, Kaufman and Goldfield all spoke Thursday about better cooperation among city officials notorious previously for their political infighting. "We took this into a problem-solving mentality rather than a litigation mentality," said Lynch.
"Cooperation took us a while sometimes," Lynch, smiling, said on the witness stand. "The process has been very complex and sometimes very difficult."
Kaufman said the plan goes beyond meeting the standard for confirmation. "This is one of a kind in Pennsylvania and probably a hallmark for how communities can settle their matters," he said.
Goldfield, smiling afterward, praised Kaufman highly. "He really was the architect of this whole approval, and he implemented it impeccably," he said.