Rendell Urges Harrisburg Against Bankruptcy
HARRISBURG, Pa. - Pennsylvania Gov. Edward Rendell Wednesday night urged the Harrisburg city council to lease municipal assets to meet debt obligations rather than filing for bankruptcy or seeking state oversight under Act 47.
While Rendell has met with numerous city officials during his seven years as governor to discuss financial issues, it was the first time ever that he appeared before a city council meeting to offer his advice on how a municipality can improve its fiscal outlook. As mayor of Philadelphia from 1992 to 1999, Rendell helped the city emerge from a $250 million budget deficit and declining employment, in part by leasing airport parking garages to raise needed revenue.
Harrisburg Mayor Linda Thompson asked the governor to speak before the seven-member council to share his experiences in Philadelphia. Harrisburg, Pennsylvania’s capital city, is unable to pay down $282 million of outstanding incinerator debt sold through the Harrisburg Authority and has turned to Assured Guaranty Municipal Corp., insurer of the bonds, to meet principal and interest payments. In addition, a $34.6 million short-term working capital loan will come due in December, and officials have no plan, as of yet, to repay or refinance that debt.
The authority does not have sufficient operating revenue to pay debt service costs. Harrisburg officials did not include such payments in the city’s $64.7 million fiscal 2010 budget. Fiscal 2010 began Jan. 1. The city is first guarantor of the incinerator debt. Dauphin County, where Harrisburg is located, guarantees much of the debt and has budgeted for its obligations.
One option for Harrisburg is to lease city parking garages that currently bring in to the city’s coffers roughly $4 million annually. Rendell said that option is more favorable than Act 47, which offers state oversight of distressed municipalities, or a bankruptcy filing.
“Could you go with Act 47, yes, and Act 47 is preferable to bankruptcy,” Rendell said before the city council. “And we think by court decision you might have to go with Act 47 before you go into bankruptcy, but I would recommend, at this time, against either procedure because I think there are paths out that don’t require Act 47 and don’t require going into bankruptcy.”
“Whether you go into Act 47 whether you go into bankruptcy, whether you do it yourself, the one weapon you have in your arsenal, the one arrow in your quiver, is to lease city assets,” he said. “You don’t like that, nobody likes leasing city assets.”
Rendell suggested the seven city council members and the mayor to put aside differences and work together on a plan. He said that during his tenure in Philadelphia, its city council and his administration dealt with its fiscal issues by forming one voice to get the city back on track, regardless of individual preferences. The city council did not always agree on his proposals and he didn’t always like their modifications, but the two governing bodies focused on a common target to get Philadelphia back on track.
Rendell then stressed that Harrisburg must move quickly on a fiscal plan to address its indebtedness.
“Get it done, we’ve got to move,” the governor urged the panel. “We can’t procrastinate. People are watching and offers may not be on the table for very much longer. Whether it’s to lease the parking garages or to lease other property, the longer there’s inaction here the less chance we have of revival.”
Afterwards, Rendell acknowledged that the council cannot act until the mayor presents the panel with a forbearance agreement, which would give the city some breathing room from its creditors to work out a debt restructuring plan. The city is seeking for that agreement to last 180 days while AGM has asked for 90 days, Brian Hudson, executive director of the Pennsylvania Housing Finance Agency said. Rendell asked Hudson to work with Harrisburg, Dauphin County, and AGM on the forbearance agreement. Those discussions have been ongoing since early April.
Hudson anticipates handing over a “forbearance term sheet” to the city council within two weeks. That document would lay out the basic parameters of a longer forbearance agreement.
In addition, he anticipates the city will select an outside financial adviser by early July. The adviser will assist the city with its debt restructuring plan. Responses to a request for qualifications are due on Tuesday and the city will release a request for proposals within a week, Hudson said.
If the city, which carries a non-investment-grade credit rating of B2 from Moody’s Investors Service, needed to return to the municipal market to refinance any of the outstanding incinerator debt, the state would not be able to place its double-A credit rating behind the transaction, both the governor and Hudson said.
“I’ve looked at that and I don’t think we have the legal authority to do so,” Rendell told reporters after the meeting. “I don’t think we have the legal authority to do so and even if we did, it would open up a Pandora’s box and every municipality would be coming to us for the same reasons.”
In addition, the governor reiterated to the city council that a state or federal bailout was not an option for Harrisburg. What Pennsylvania can offer the city, he said, are business incentive programs that would build the city’s private sector by encouraging businesses to relocate or expand their operations in Harrisburg. Rendell said this is a key component of creating more jobs in the city and expanding its tax base.
“You’ve got to do these things concurrently,” the governor said to the council members. “You’ve got to get our fiscal situation under control and then give economic development incentives. Get people in here again. And that’s an area where we may be of great help. The Governor’s Action Team is willing to work with you on any perspective business that wants to come to Harrisburg.”