Watching Harrisburg crash and burn
We are now watching Harrisburg crash and burn. The busted Pennsylvania capital of 49,000 is crushed by $463 million in city debt and an additional $282 million in debt for the public school system. The state senator representing the area, Jeff Piccola, used his power last June to pass state legislation (Act 47 amendments) that shackled Harrisburg with accepting a receiver appointed by the governor and barred the city from filing bankruptcy until June 30, 2012.
Adhering to the Act 47 requirement that the mayor work with the city council to approve a fiscal recovery plan, Mayor Thompson fought a months-long war that resulted in her plan being rejected three times and the governor’s appointment of a receiver, David Unkovic. After the Dauphin County court approved Unkovic last November, he tried to help the city balance the budget, sell assets and negotiate with bondholders. Amid all that action, a subset of the city council, against the mayor’s wishes, filed a Chapter 9 municipal bankruptcy petition that was ultimately rejected by a federal judge as a result of Senator Piccola’s Act 47 legislation.
Harrisburg’s biggest albatross is its responsibility for the debt of the Harrisburg incinerator – a monstrosity of design and a debacle of public financing. The responsibility for this debt first lies with the city and then with Dauphin County and bond insurer Assured Guaranty.
On Apr. 2 Unkovic inexplicably announced his resignation in a letter to the governor. This followed a dramatic press conference Wednesday in which Unkovic began to name names in the Harrisburg drama, beginning with State Senator Piccola, who recently announced his retirement from electoral politics. Also among those Unkovic named was the lobbyist who had worked with the staff of Governor Tom Corbett on the legislation to place Harrisburg into receivership and bar it from filing bankruptcy. Citizen journalist Tara Leo Auchey captured the Unkovic yarn-spinning at his hastily arranged press conference:
Which leads us to another player in the true Harrisburg debt story – Senator Jeff Piccola. During Unkovic’s press conference, he referred to the closing of the Dauphin Meadows landfill and Piccola’s position on that. Now, this is another history lesson but an important one. In 1990, Senator Piccola fought against the Incinerator and fought for use of the landfill for Dauphin County trash. The State agreed and all County trash went away from the Incinerator and to the landfill. When that happened, the Incinerator lost immense value over night.
Ten years later in 2000, Piccola switched sides, dramatically and flamboyantly. He decried the landfill [as] a nuisance and joined in a community-based lawsuit to shut it down. Piccola announced the Incinerator should be used for all Dauphin County trash.
And it was. Dauphin County entered into a municipal waste agreement with the City and The Harrisburg Authority. It is because of this agreement — and only because of this agreement — that the broken, deprived Incinerator was able to get financed to get fixed, since Dauphin County would guarantee the bonds. Piccola helped make it happen.
But Unkovic didn’t stop his list of naming names there. He called out the lobbyist Stan Rapp of Greenlee Partners, who is the lobbyist for both Dauphin County and for the bond insurer AGM [Assured Guaranty]. As we discovered last Fall, Stan Rapp was part of numerous meetings with the Governor and the Governor’s representatives about Harrisburg’s Act 47 process, which eventually became the City’s takeover by the State pushed by Dauphin County officials and Senator Piccola.
When I first wrote about Unkovic last November, I mentioned that he had worked for the law firm that represents Assured Guaranty, the city’s bond insurer, for 27 years:
Harrisburg back to square one
Federal bankruptcy judge Mary France dismissed the Harrisburg City Council’s petition to file municipal bankruptcy last Thursday. According to Bloomberg her ruling stated:
“For Chapter 9 bankruptcy to work, all of the branches of the municipality must be on the same page,” France said. “Therefore I find that city council was not authorized to file the petition.”
Harrisburg needs the bankruptcy option
Pennsylvania Governor Tom Corbett took the next step in the process of pushing the bankrupt capital of his state towards fiscal recovery today. Bloomberg reports:
David Unkovic, chief lawyer for the Pennsylvania Community and Economic Development Department, is set to run the finances of Harrisburg after Governor Tom Corbett nominated him as the state’s first municipal receiver.
Once approved by a state court, the overseer may act without the consent of the bankrupt capital city’s elected officials. Unkovic’s appointment may be reviewed as soon as Nov. 28.
Unkovic has 30 plus years of experience as a bond counsel. The governor has also hired a Washington law firm to assist Unkovic on his fiscal restructuring efforts. Harrisburg has an impossible pile of debt to service, and much of it needs to be discharged to make the city’s finances sustainable.
Harrisburg’s leadership shortage
Harrisburg is a town that’s been crushed by debt and years of incompetent management. The city has been led by a mayor, Linda Thompson, who is unable to work with a majority of her city council and who will likely find her role greatly diminished as the state takes fiscal control of the insolvent city. I’m not sure that I’ve ever seen a politician who has so little control over the affairs of her city. Edith Honan and Kristina Cooke of Reuters did an outstanding backgrounder about the level of dysfunction among the Harrisburg’s political class:
Prayers notwithstanding, [Linda] Thompson and [Comptroller] Dan Miller, the city’s top financial official, refuse to speak to one another, even as the city they lead continues hemorrhaging money. Thompson characterized Miller as a “political opportunist who will stop at nothing to accomplish his self-centered ambitions.” Miller, who plans to challenge Thompson for mayor in 2013, said he considers Thompson “paranoid,” “not well educated” and “a phony.”
His words seem kind compared with those offered by four former Thompson aides. They told the local newspaper that the mayor isn’t fit to hold office.
The sharks circling Harrisburg
Harrisburg, Pennsylvania is being smothered by its outstanding debt of $463 million. The sharks are circling and the city has only about $244 million in assets that can be liquidated easily. Let’s guess how this game will play out.
The debt consists of two buckets. The first contains publicly-issued bonds, capitalized leases and various other loans and obligations that are considered “general obligations” of the city. This debt totals about $130 million and is in the form of stadium, redevelopment, sewer and other sundry municipal debt. The city has been paying approximately $12 million a year, or 20 percent of its annual revenue, to service this debt.
Harrisburg is insolvent
The capital of the Keystone State is swirling with political infighting and power grabs over the issue of money. There is just not enough of it to pay all of Harrisburg’s creditors who have appeared at the door. Now that the county has said “Enough!” to providing more loans to cover debt payments, it’s the end of road and events are accelerating.
Harrisburg had already filed for municipal bankruptcy a week ago, but that didn’t stop the state from finalizing legislation that will put the city into receivership. Pennsylvania’s latest move adds another layer of complexity to the resolution process. The Harrisburg City Council responded to the state’s action with the following statement published in the Patriot News:
Harrisburg has more than incinerator debt
The current bankruptcy drama in Harrisburg, Pennsylvania is just the third act of a long running effort to make the city something more than a corridor for those who commute into the city for work. Most of the current debt problems of Harrisburg stem from failed projects intended to revitalize the city and extremely bad business decisions.
The chart above shows the massive increase in Harrisburg’s population that occurred up to 1950 then starting falling steeply since mid-century. The city’s population was actually smaller in 2010 than it was in 1900. It’s just one of many American cities that has seen its vitality and population fade away.
A Harrisburg scorecard
“Who benefits from all this tap-dancing? Who’s interest is the Commonwealth promoting? Not the public, not the city of Harrisburg. They are promoting the interests of the bond insurers.”
That is a quote from Mark D. Schwartz, the attorney for the city of Harrisburg, Pennsylvania who filed for Chapter 9 bankruptcy on October 11. Harrisburg is the center of a multi-year, multi-player fiasco over an enormous, under-utilized waste incinerator. The city stopped making payments ages ago on the incinerator bonds and is past due on about $85 million of principal and interest.
The Dummies Guide to the Pension Crisis
Hat tip to Ted Nesi of WPRI.com for pointing out this excellent union sponsored video that discusses the problems for the public pensions of Rhode Island. Although the details are specific to that state the structural problems apply to almost every state because public pensions across America are underfunded. Every state faces problems that are politically or financially difficult. Either taxpayers will be paying more to top pension plans or retirees will be receiving smaller pension payments. Pension reform is a complex topic and I hope we see more educational efforts like this video.
Further:
Local governments’ tough choices between payrolls or bond payments?
Harrisburg walks the well worn path
The capitol city of Pennsylvania, Harrisburg, is functionally if not legally bankrupt. Yesterday the City council voted against the mayor’s rescue plan which would have brought them a small reprieve but would not have fixed their core financial issues. The city’s main problem is a grossly expensive incinerator project which has burdened the city with way too much debt. Their situation is similar to the sewer system woes of Jefferson County, Alabama on about one tenth the scale. Like Jefferson County, anger about bondholders being prioritized ahead of the needs of citizens was on display at yesterday’s city council meeting. From Reuters:
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