Bond banking, law, and government all decorate Mark Schwartz’s resume. “I have a tripolar background,” he said.
In the mid-1970s, Schwartz, fresh out of college, got a taste of government as a legislative assistant at the Pennsylvania capitol to Majority Leader K. Leroy Irvis, who later became the first African-American House speaker in any state legislature since Reconstruction.
“I managed the calendar, among other things. I learned a lot about the legislative process, what can work and what can’t,” he said of his days in Harrisburg.
Another mentor was Sidney Ruffin, the bond counsel who helped orchestrate Pittsburgh’s revival.
Years later, Schwartz is re-entering Harrisburg as the newest player in a municipal-distress case rife with political and legal drama that accompanies $310 million worth of incinerator-related bond debt.
Harrisburg’s City Council voted last week to retain Schwartz — who lives in Bryn Mawr and runs a Philadelphia-area law firm — to help combat an attempted state takeover in an escalating tug-of-war between the capitol and City Hall.
“I tend to take interesting cases,” said Schwartz, who says he will bill the struggling city later for services “unless the governor takes over my finances.”
“I would hope there wouldn’t be this great rush to straitjacket Harrisburg,” he said in an interview. “Can’t we all just wait a second? I see some fundamental issues of sovereignty.”
The city of 49,000 is struggling to deal with $300 million of debt stemming from an over-budget incinerator project.
Legislation that would enable Gov. Tom Corbett to declare a state of fiscal emergency and appoint a receiver to run Harrisburg easily passed the House last week and will be on the calendar when the Senate reconvenes the week of Oct. 17.
“I’m no bond expert, but I’ve been told there’s legitimate concern when a municipality walks away from bondholder commitments,” said Rep. Glen Grell, R-Hampden Township, whose suburban Cumberland County constituency lies across the Susquehanna River from Harrisburg.
“Bondholders will be less inclined to get involved with other nearby communities, and even possibly the state itself.”
His amendments, which attempt to strengthen Corbett’s hand, revived a takeover bill filed last June by Sen. Jeffrey Piccola, R-Susquehanna Valley, whose district includes parts of Dauphin County, which includes Harrisburg.
Grell’s comments reflect those in Rhode Island, where state lawmakers, worried about the contagion effect of a bankruptcy filing by Central Falls, passed a preemptive bill last spring that guarantees lenders first rights to their property taxes and general revenue.
Central Falls filed for Chapter 9 protection on Aug. 1, prompting a flurry of downgrades to other Rhode Island municipalities and issuers, most recently North Providence, which Moody’s Investors Service lowered one notch to Baa2 on Thursday.
In Harrisburg, embattled Mayor Linda Thompson has admitted throughout the summer and fall that bondholders are skittish.
“No bond insurer will touch the city of Harrisburg with all the dysfunction and uncertainty going on,” she said at a recent town meeting, echoing remarks she made last month when the council rejected a proposed financial recovery plan under the Act 47 program for distressed Pennsylvania communities.
Three times, all by 4-to-3 votes, the council has turned down such a plan, which, among other measures, called for the city to sell or lease the incinerator and its parking garages.
Faced with missing two general obligation bond payments and the September payroll, the city obtained a $7.4 million up-front payment from the Harrisburg Parking Authority for a 10-year lease extension with city garages.
Meanwhile, another suitor is lurking for the troubled incinerator, which sits four miles from downtown. Last week, the Harrisburg Authority, which runs the trash burner, acknowledged interest from a second, unnamed suitor.
A neighboring incinerator agency, the Lancaster County Solid Waste Management Authority, has already offered $124 million for the Harrisburg facility.
“We did receive a second letter of intent, but at this point we’re still not ready to reveal the identity,” Harrisburg Authority board member and local attorney William Cluck said at last week’s meeting.
Schwartz has asked Corbett’s general counsel, Stephen Aichele, to meet and discuss the legal aspects of the state takeover bill, as well as a law enacted in June that prohibits cities of Harrisburg’s size from filing for bankruptcy protection under the threat of the loss of all state aid.
The bankruptcy law, which Piccola sponsored late in the session, passed as part of an amendment to Pennsylvania’s fiscal code.
Some council members and others at City Hall have argued that the city should file under Chapter 9 anyway, and test the legality of the law.
“Have you seen the wording on that Piccola bill? It’s very weird. It never made sense,” one city official said. “It says you can’t file bankruptcy, but then a few paragraphs down, it says that if you do file bankruptcy, the state will cut off your aid.”
Schwartz has his own critique.
“Act 47 is a step-by-step process, with the final step to file for bankruptcy if necessary,” he said. “I have a question about a process that starts when bankruptcy is a clear option, then all of a sudden, people say, 'Whoops, you can’t do that.’ ”
“They’re trying to take bankruptcy off the table, but I don’t see any meaningful distinction between bankruptcy and receivership,” Schwartz said.
“This process isn’t helping anybody but the consultants. I read the 400-page Act 47 report. It just reads like a civics lesson,” he added. “Frankly speaking, significant state taxpayers’ money has been wasted on a process that would have been better spent in the form of direct support to the city.”
Grell, however, said city officials have already had their chance.
“They’ve refused to accept any plan and they never came to the state,” he said. “It’s unfortunate that the city has come to this situation. We’ve tried to encourage the parties to resolve this on their own, but that has not happened.”
The post-receivership role of Thompson, whose acerbic comments have made her a target for critics, was the subject of widespread debate last week as takeover legislation raced through the House.
In Central Falls, the state-appointed receiver, Robert Flanders, stripped powers from the mayor and City Council immediately upon taking power.
Brian Fraser, a partner at law firm Richards Kibbe & Orbe LLP in New York, said Pennsylvania is on solid ground. He also said lack of a “good-faith effort” to resolve financing problems works against Harrisburg.
“Municipalities aren’t sovereign,” Fraser said. “They’re creatures of state law, and state law can be changed as in Central Falls, where officials were removed and the state receiver took over control.”