Harrisburg Mayor Proposes Asset Sale, Possible Tax on Commuters

Pennsylvania’s capital city must sell a debt-laden trash incinerator, lease its parking system and consider a tax on commuters if those measures aren’t enough to restore fiscal stability, Harrisburg Mayor Linda Thompson said.

The city, which has a $5 million budget deficit, stands to lose $3 million in state aid -- jeopardizing its ability to pay bondholders and employees -- if the City Council votes down the blueprint announced yesterday by Thompson.

“The plan will accomplish the core objectives and return the city of Harrisburg to solvency,” Thompson told reporters. “And it will do so with shared responsibility and shared burden, with a minimal impact to the citizens.”

The council must vote to approve the plan by Sept. 6 or risk the loss of state aid, said C. Alan Walker, head of the state’s Community and Economic Development Department, which runs a distressed-cities program that Harrisburg entered in December.

The mayor’s presentation of her own rescue initiative follows a 4-3 vote by the council on July 19 rejecting recommendations from a team of state-hired consultants. It was the first time a municipality in the program known as Act 47, which started in 1987, turned down such a plan.

Harrisburg’s fiscal crisis originated in a project to overhaul and expand an incinerator, which resulted in a debt burden five times its general-fund budget. The community of 49,500, where about a third lives below the poverty level, is also dealing with declining tax revenue.

Bond Payments

Harrisburg, the seat of Dauphin County, needs $310 million to make bond payments, restructure debt and repay the county and insurer Assured Guaranty Municipal Corp., which made payments the city skipped on the waste-to-energy facility.

Thompson’s recommendations call for selling the incinerator and leasing the parking system to pay off the debt. It differs from the original blueprint by asking the county, state and Assured Guaranty to fully retire the obligations, estimated at $26 million, that proceeds from the sale and lease wouldn’t cover.

While the county and state have committed to additional funds, Assured Guaranty hasn’t, Thompson said. If debt remains, she said she’d ask for a commuter tax, a provision the consultants didn’t include and a step sought by some council members.

“Assured Guaranty is in the process of reviewing the plan that was released today by Mayor Linda Thompson,” said a spokeswoman, Ashweeta Durani, in an e-mail yesterday.

County commissioners issued a statement calling Thompson’s plan “encouraging.”

Limited Options

Harrisburg’s options are more limited than municipalities such as Central Falls, Rhode Island, which sought Chapter 9 bankruptcy protection on Aug. 1. The capital is barred from seeking bankruptcy before July 2012, according to a Pennsylvania law that also said the city would lose state funds if it tried.

“If her plan isn’t approved, we’re in trouble,” Council President Gloria Martin-Roberts, who voted for the original blueprint, said last week in a telephone interview. “Big trouble.”

Harrisburg must make $3.3 million in general-obligation debt payments on Sept. 15, according to bond documents. Meanwhile, the capital will run out of money in September, the Act 47 consultants said.

The Harrisburg Parking Authority will provide a short-term loan of $6 million to $8 million if her plan is approved, allowing the city to meet its obligations, Thompson said.

State Funds

The state provides $3 million in funds for fire protection, recycling grants and community projects, said Steven Kratz, a spokesman for the state economic development department.

Even if the council votes for Thompson’s plan, it’s subject to approval by Walker, the department’s head, Kratz said. A public hearing on the plan will be held in Harrisburg on Aug. 11, the mayor said.

Thompson called for cooperation from the City Council, invoking the crisis facing another municipality that’s considering bankruptcy over a sewer-debt burden.

“Absent that teamwork, no plan will save the city as it faces a calamity similar to that of Jefferson County, Alabama, where collapse and bankruptcy loom,” she said.

To contact the reporter on this story: Romy Varghese in Harrisburg, Pennsylvania at rvarghese8@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net

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