Harrisburg Proposed Receiver Says Bond Debt ‘Disturbing’
December 02, 2011, 12:52 AM ESTBy Steven Church
(Updates with documents request in eighth paragraph.)
Dec. 1 (Bloomberg) -- The bonds behind Harrisburg’s fiscal crisis have a ‘disturbing’ structure, the proposed receiver for Pennsylvania’s capital city said in a court hearing.
Former bond attorney David Unkovic told the judge who will decide whether to approve his appointment that the bonds used to finance an insolvent incinerator had an unusual structure that he plans to review.
“I’d say it is uncommon,” Unkovic told state Judge James R. Kelley in Harrisburg. “It is disturbing to me.”
The bonds themselves couldn’t be challenged, no matter what a review uncovers, Unkovic said in an interview after the hearing. The law does allow legal action against entities that provided false information to support a bond issue, Unkovic said. He declined to answer questions about what aspects of the incinerator bonds’ structure he considered disturbing.
Governor Tom Corbett nominated Unkovic to become Harrisburg’s receiver after the City Council and the mayor failed to fix the city’s fiscal crisis. The city is insolvent partly because it has guaranteed repayment of about $242 million in incinerator bond debt, which the facility cannot cover by itself.
Unkovic is chief lawyer for the state economic development department. Corbett’s administration seeks to give Unkovic the power to override Harrisburg’s mayor and city council, who have been feuding over how best to solve the city’s budget crisis.
Failed Bankruptcy
The council tried to put the city beyond the reach of a state receiver, and bondholders, by filing bankruptcy in October. The petition was thrown out by a federal judge six weeks later after being opposed by Corbett and Mayor Linda D. Thompson.
Unkovic testified mostly about his qualifications to be receiver, saying he didn’t have any conflicts of interest that would prevent him from carrying out his duties. He has worked as a bond attorney helping municipalities in Pennsylvania raise money through public debt for decades, he said in court.
Unkovic has already taken action since his nomination on Nov. 18. He asked Jill Busch, acting chief counsel of Pennsylvania’s Community and Economic Development department, to send letters to firms involved in Harrisburg’s incinerator financing deals in 2003 and 2007 requesting that they preserve their records.
Unkovic, along with law firm McKenna Long & Aldridge, is going to review the deals as part of the process to develop a recovery plan for the city, said Steven Kratz, a spokesman for the economic development department said.
Before the hearing an attorney for the City Council, Mark Schwartz was denied permission to question Unkovic, or otherwise participate in the proceedings.
Kelley ruled that Schwartz should have filed a routine notice announcing his intention to be involved in the case. Instead, Schwartz sent a letter to the court clerk last month saying he would not be involved, Kelley said.
City Council members plan to meet with Unkovic, Chuck Ardo, a spokesman for the council majority that filed for bankruptcy said. Unkovic’s job should not include overriding local officials, Ardo said.
“State government’s role is not to determine which side wins in a local political dispute,” Ardo said. “It’s an outrageous usurpation of power that should make every local government uneasy.”
The receiver case is Walker v. City of Harrisburg, 569MD 2011, Pennsylvania Commonwealth Court (Harrisburg).
--With assistance from Romy Varghese in Philadelphia. Editors: Stephen Farr, John Pickering
To contact the reporter on this story: Steven Church in U.S. Bankruptcy Court in Harrisburg, Pennsylvania, at schurch3@bloomberg.net.
To contact the editors responsible for this story: John Pickering at jpickering@bloomberg.net.
