Harrisburg may avoid default; Pa. looks at control

Reuters News
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Posted: Sep 07, 2011 4:43 PM
Harrisburg may avoid default; Pa. looks at control

By Edith Honan

NEW YORK (Reuters) - A deal by the debt-laden Pennsylvania state capital of Harrisburg appeared on Wednesday to have avoided a default on its September 15 debt payment, an official said.

The Harrisburg Parking Authority plans to refinance its debt in the next week, freeing up money to make an advance lease payment to the city, which Harrisburg would use to make the debt payment as well as to pay city employees, Corky Goldstein, an authority board member said.

Meanwhile, the state legislature is taking steps to set up a receivership to solve the city's long-term fiscal crisis.

Under a bill state lawmakers hope to introduce later this month, Governor Tom Corbett would be empowered to declare a fiscal emergency while the state and Harrisburg make a final effort to agree on a long-term fiscal recovery plan, State Representative Glen Grell told Reuters in an interview.

Failure to reach an agreement would "automatically trigger receivership," said Grell.

It was not immediately clear if the Grell plan has enough support to ensure its eventual passage.

The deal with the parking authority will prevent Harrisburg from running out of money this month, which would have left the city unable to pay its workers or make debt payments, including a $3.3 million bill that comes due September 15.

The authority had tried and failed to secure a private bank loan in order to deliver $7.4 million to the city, Goldstein said.

The debt refinancing will get the authority about $10 million, including money it will pay the city.

The city has no plan in place to address its larger fiscal problem -- a separate $300 million debt crisis, which stems from a revamp of its incinerator.

Harrisburg is one of a handful of U.S. cities that have flirted with filing for a rare municipal bankruptcy as a way to address its fiscal difficulties in the wake of the recession.

Corbett, a Republican and the Republican-controlled state legislature have opposed such a move for Harrisburg, saying the city would be better off agreeing to a rescue plan under the state's program for distressed cities.

In July, the Harrisburg City Council rejected a state-approved rescue plan, which called on it to renegotiate labor deals, cut jobs, and sell or lease its most valuable assets, including the incinerator and parking garages.

Last month, the council rejected a similar plan that had been crafted by Mayor Linda Thompson, saying that both plans were overly burdensome for Harrisburg residents and did not ask enough of the county, bond holders and the bond insurer.

"PERIOD OF FORCED NEGOTIATIONS"

The state legislature, which begins its session later this month, is expected to take up the bill relating to Harrisburg.

The legislation being drafted by Grell would amend a bill put forward last session by State Senator Jeffrey Piccola calling for a three-member board to take control of the city.

Lawmakers in the state's lower house expressed concern the law violates a provision in the state Constitution that bars turning municipal functions over to unelected boards and commissions, Grell said.

According to Grell's plan, once a fiscal emergency is declared, the state can implement a plan "for the maintenance of vital and necessary services" -- including payroll and debt service payments -- while the state and the city enter a "period of forced negotiations" for 30 to 90 days to develop a long-term fiscal recovery plan.

"If a plan is not reached, then the governor would be empowered to appoint an emergency manager...who would manage the affairs of the city under the direction of (the state) for a period up to two years, subject to extension if necessary," said Grell.

(Reporting by Edith Honan; Editing by Diane Craft)