Harrisburg council rejects Pa. state financial fix

AP News
Posted: Jul 19, 2011 11:24 PM
Harrisburg council rejects Pa. state financial fix

The city council in Pennsylvania's financially troubled state capital on Tuesday rejected a recovery plan written by state-appointed consultants, forcing the mayor to write her own plan and keeping alive talk of seeking federal bankruptcy protection.

The vote, 4-3, also puts state aid in jeopardy if the city cannot deliver a recovery plan that gets approval from the administration of Gov. Tom Corbett. Proponents said it was the best plan they'd seen, and that changes can still be made to improve objectionable parts.

But opponents protested that the only sacrifices would be made by Harrisburg's citizens, and not by lenders, backers of the bonds or the professional advisers over the years who, they said, helped the city borrow its way into its deep hole of debt.

"Everybody who has come to the table is not giving 100 percent and I am not going to let this fall on all the taxpayers in the city of Harrisburg. ... When you take a risk on Wall Street, guess what?" Councilwoman Susan Brown Wilson told a packed meeting. "Sometimes, it's a loss."

Mayor Linda Thompson, who had asked council to approve the plan, pledged to reach out to creditors on Wednesday morning to calm them, and to deliver a plan within the 14 days allowed under state law. She said she supports 75 percent of the plan written by the state's consultants and that she will maintain the plan's key elements of selling or leasing city-owned assets to pay down debt that dwarfs the city's annual budget.

"I'm optimistic, no matter what council's decision was tonight," Thompson told reporters after the meeting.

The Harrisburg Regional Chamber and Dauphin County, which includes Harrisburg, both supported the state's plan. One of the state's consultants, Cincinnati-based Julia Novak, said the team worked to extract some concessions from the county and bond insurer Assured Guaranty Municipal Corp., which have both backed substantial portions of the city's debt.

"We came up with a plan where they sacrificed, they put money on the table and we thought it was a reasonable contribution," Novak said after the vote. "Maybe someone else can get more, I can't imagine how."

Both Dauphin County and New York-based Assured Guaranty have lawsuits pending against Harrisburg seeking to recoup tens of millions of dollars in debt payments they fronted for the city.

Aside from its deep debt, Harrisburg is facing a budget shortfall and is expected to be unable to pay some of its bills later this year. Under the state's plan, it could return to solvency in 2013, Thompson has said. The deficit is $5.6 million, or about 10 percent of the city's $55 million approved budget, according to Thompson.

The plan was developed by a team appointed by the state under a law nicknamed Act 47 that is designed to help so-called financially distressed cities. In addition to grants, it makes low-interest loans available.

Some Harrisburg city officials have suggested that the city should seek federal bankruptcy protection as a way to force concessions from lenders. But that could cause the city to lose state aid.

Besides calling for increasing city taxes, the deal relies on two key elements: Selling the city's trash incinerator to the Lancaster County Solid Waste Management Authority and selling _ or leasing long-term control of _ its parking garages, meters and lots in exchange for a sizable upfront payment.

The proceeds from those two deals would help pay down approximately $300 million debt, including refinancing costs, tied to the incinerator.

Much of the incinerator debt was borrowed in the last eight years to overhaul the aging facility in an attempt to transform it into a moneymaker for the city. However, the overhaul cost much more than anticipated and took much longer to complete than city leaders originally envisioned.

As part of the plan, the state and county also have pledged their help in securing millions of dollars for the city, while the county has pledged to increase trash-service fees its residents pay to dump their trash at the incinerator.

Some Harrisburg city officials have suggested that the city's best course of action would be to seek federal bankruptcy protection as a way to force concessions from lenders. However, in late June, the Republican-controlled state Legislature approved a provision to effectively withhold state aid from Harrisburg if it files for bankruptcy before July 1, 2012.