Nov. 8 (Bloomberg) -- Harrisburg’s leaders agreed to sell municipal assets as part of a plan to keep Pennsylvania’s bankrupt capital from becoming the first city put under a receiver through the state’s law to manage fiscal crises.
During a public meeting late yesterday mandated by the law, Mayor Linda Thompson and five of seven City Council members also decided to ask municipal creditors such as Assured Guaranty Municipal Corp. to forgive $100 million in debt.
With negotiations on a plan continuing, the council and Thompson agreed to resume meeting tomorrow, just days ahead of a Nov. 14 deadline to submit a course of action to the state for approval. Failure may mean the city will be put under a receiver empowered to take fiscal steps without the council’s consent.
“Let it be a starting point,” the mayor said of Councilman Brad Koplinski’s proposal to seek $100 million in debt forgiveness. There is “no rhyme or reason” to the idea, Thompson said, adding that creditors may agree to something else. She has proposed asking for forgiveness of a percentage of debt left outstanding from asset sales.
Koplinski was among four council members who backed putting Harrisburg into bankruptcy proceedings last month. In the resulting Chapter 9 filing, the city listed more than $60 million in unpaid obligations on about $242 million of debt tied to an overhaul and expansion of an incinerator that hasn’t generated enough revenue to cover the obligations it incurred.
A majority of the council and Thompson agreed to support selling the incinerator and leasing the city’s parking facilities. The agreement was conditioned on the receipt of regular progress reports from a forensic audit of the trash-to- energy plant’s financing, which tipped the community into insolvency. Council members have rejected previous plans that required asset sales.
The community of about 49,500, where more than a quarter live in poverty, has debts of about five times its general-fund budget. The city’s bankruptcy filing, the first for a U.S. capital city in at least 40 years, was aimed at warding off a receiver and faces challenges from the mayor, the state, unions, bond insurers and other parties.
“The best place to get a plan is through bankruptcy,” Mark Schwartz, the lawyer hired by the council for the court filing, said yesterday in an interview following a closed meeting with creditors. He later called Thompson’s numbers “a floating crap game.”
At the public meeting, Thompson proposed adding Ambac Assurance Corp., the backer of the community’s general- obligation bonds, to those Harrisburg is asking to help pay off the incinerator debt. Other creditors include Assured Guaranty and Dauphin County, which guaranteed the incinerator financing and made payments the city skipped, and the plant operator, a unit of Covanta Holding Corp., based in Morristown, New Jersey.
Disagreement between the mayor and her council opponents over the fiscal crisis led state legislators to pass a law letting Governor Tom Corbett put in motion the process leading to the seizure of the city’s finances by a receiver. The official may be approved by a state court after Nov. 25 if Pennsylvania rejects the city’s recovery measures.
A short-term action plan from C. Alan Walker, the state community and economic development secretary, mandates a freeze on hiring and nonessential purchases, while raising parking and business fees. Harrisburg will face a $1 million deficit by year-end and, to close the gap, must sell tax liens that may fetch $1.4 million, Walker told city officials Nov. 3.
State law requires the city to follow Walker’s mandates under Corbett’s fiscal emergency declaration.
--With assistance from Steven Church in Wilmington. Editors: Ted Bunker, Mike Millard.
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