Payments Loom for Harrisburg

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HARRISBURG, Pa. — The City Council’s latest rejection of a state-sanctioned financial workout has left Harrisburg scrambling to meet $3.3 million in general obligation bond payments due in two weeks and two more payrolls this month.

And while the plan devised for Pennsylvania’s capital city under the state’s Act 47 program was defeated, major components could resurface in some form of expected state takeover.

“This plan isn’t going away, folks,” Patty Kim said emotionally Wednesday night before her council peers voted four to three for the second time in six weeks against the plan. Kim voted in the minority.

“It’s now the Act 47 plan,” she said. “Then it will become the state’s financial recovery plan and if the city files for bankruptcy, it will become the Harrisburg bankruptcy recovery plan.”

Bond analysts and legal experts generally agree that any oversight blueprint would involve the sale or lease of the city’s financially troubled trash incinerator and also its revenue-producing parking garages.

“Some or all of that will come into play in whatever solution the state comes up with. It’s the only way to find a solution,” said Alan Schankel, managing director and head of fixed-income research and strategy at Janney Capital Markets in Philadelphia.

A more immediate concern for the city is covering two GO bond payments totaling a combined $3.3 million due Sept. 15 and two more payrolls in a three-payday month. City Controller Dan Miller said Thursday that Harrisburg, after processing its Sept. 1 payroll, has roughly $600,000 remaining. That and increased collections could help meet one of the payrolls, he said, while sewer-fund revenues could help the city make one of the two equal bond payments.

The Harrisburg Parking Authority is willing to extend its leases on the city’s garages for another 10 years, thus providing $7.5 million. The council, in a separate vote Wednesday night, approved such a move, but the authority still needs bank approval on a loan, which had appeared to hinge on passage of a workout plan.

Harrisburg, with a 48,000 population, is staring at $300 million in debt related to cost overruns in an incinerator retrofit project. Lawsuits may re-emerge over missed bond payments. The Harrisburg Authority, which operates the incinerator four miles from downtown, Dauphin County and bond insurer Assured Guaranty Municipal Corp. had placed litigation on hold pending a recovery plan.

“The county will continue to pursue its remedies,” county commissioners Mike Pries, Jeffrey Haste and George Hartwick 3d said in a joint statement.

Mayor Linda Thompson, who reintroduced the Act 47 plan after the council on July 19 rejected a consultant’s recommendations, acknowledged the immediate worry about cash flow.

“The bond markets aren’t willing to touch this city with all the chaos and all the dysfunction that’s going on. No one’s going to run to our aid,” a visibly upset Thompson said at a press conference on Wednesday night, one floor above the council chambers.

The politically charged atmosphere intensified Thursday afternoon when Miller, a critic of Thompson, acknowledged he would run for mayor in 2013. “There’s been no formal announcement, but it’s something I’ve been planning to do,” he told The Bond Buyer.

According to the Patriot-News of Harrisburg, council members Susan Brown-Wilson, Eugenia Smith and Wanda Williams, who voted against the plan along with Brad Koplinski, are on the host committee for a fundraiser. Kim, Council President Gloria Martin-Roberts and Kelly Summerford voted yes.

Meanwhile, Harrisburg is in a financial netherworld for now. “We’ll see what our bondholders are going to do about the $3.3 million payment,” the mayor said.

Gov. Tom Corbett told media at a public gathering on Thursday that no new aid for Harrisburg is forthcoming.

“We have to see how the state handles this,” Schankel said. “I don’t think the state’s going to walk away and let things crumble. I think you’ll see some kind of Pennsylvania legislation, and I’m thinking it will take on the same kind of approach” as with Act 47.

“I don’t think the bond markets are extremely worried. Most of the debt has insurance. Certainly there’s a psychological impact and I shouldn’t underestimate that,” he said. “But Harrisburg and Central Falls have been floating around for a while and the bond markets know this. They’re not worried about a left turn instead of a right turn.”

Central Falls has been under Rhode Island receivership since May 2010 and filed for Chapter 9 bankruptcy protection on Aug. 1.

Pennsylvania state Sen. Jeffrey Piccola, R-Halifax, whose district includes some Dauphin County suburbs, wants to fast-track a bill that would pick a three-member panel — essentially a receivership — to implement Act 47 in Harrisburg. The General Assembly will reconvene later this month.

Harrisburg is the first municipality to reject a proposed Act 47 workout since the program began in 1987.

Another Piccola-sponsored bill, which became law two months ago, threatens distressed small-to-medium sized cities that file for bankruptcy through next July with a cutoff of all state aid.

Piccola on Thursday asked Corbett to immediately freeze state funding to Harrisburg.

Wednesday’s council meeting was highly contentious, with opposing factions tossing “smoke and mirrors,” and “dog-and-pony show” accusations back and forth. During one heated exchange, Martin-Roberts told Wilson, who participated by conference call, to “be an adult.”

Koplinski said the mayor’s plan lacked specifics and that Harrisburg taxpayers would bear too much of what should be a regional burden.

Property taxes, sewer fees and water fees would spike for city residents, he added. “It is a plan, yes, but it’s an unreliable plan.”

Martin-Roberts, who will retire Dec. 31, worried about an appointed triumvirate, possibly of nonresidents, governing the city. “We have a takeover that’s coming, mark my words,” she said. “If anyone thinks Sen. Piccola is crying wolf, they’re wrong.”

Central Falls receiver Robert Flanders immediately stripped the mayor and City Council of their powers when he took over in January. Flanders two weeks ago revoked the school superintendent’s power to negotiate teacher contracts, inserting himself into the process.

In Pennsylvania, Harrisburg’s status as a capital city magnifies the situation.

“The state does not want to let its capital city reside in any kind of financial purgatory. I think you’ll see rapid movement at the state level,” said David Narefsky, a Chicago-based partner at Mayer Brown LLP whose practice centers around public law, municipal finance and government relations.

“A receiver, at least, would be nimble enough to act in a more assertive matter to address what is obviously a very serious situation,” he said.

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