Harrisburg City Council Rejects Fiscal Plan to Rescue Pennsylvania Capital

Harrisburg’s City Council rejected Mayor Linda Thompson’s fiscal-recovery plan, putting state aid at risk and leaving Pennsylvania’s capital in financial limbo.

The 4-3 vote late yesterday marked the second time in as many months that the council has blocked a path out of debt tied to an incinerator project that saddled the city with bills it can’t pay.

“It is a plan, yes, but it’s an unreliable one,” Councilman Brad Koplinski said. “It’s making sure that Wall Street gets paid and Main Street gets the shaft.”

The decision means the city has no way out from under more than $300 million of debt, or five times its general-fund budget. The defeat could also scuttle the city’s efforts to raise cash and cause it to either miss payroll or a $3.3 million general-obligation bond payment due this month, Thompson said after the vote.

“It placed us in uncharted waters,” she told reporters. Harrisburg’s budget has a deficit of at least $5 million.

The council’s move may worsen fiscal strains if the state withholds aid. The vote also may make it more difficult to raise $7.5 million by leasing municipal land to the Harrisburg Parking Authority, Thompson said. She is also turning to Governor Tom Corbett for an advance on state funding to the city to provide cash and prevent more missed debt payments.

“Whether we get that money now is unbeknownst to me,” she said.

Ill-Fated Project

Harrisburg’s crisis arose because it guaranteed bonds that financed improvements to a municipal incinerator that hasn’t generated enough revenue to service the debt. Last year, the city entered Pennsylvania’s Act 47 aid program for distressed cities, only to see the council in July reject plans drawn up for it by consultants. The program is designed to help communities stave off bankruptcy.

The city is barred from seeking bankruptcy court protection until July, and Corbett, a Republican, said last week that the council’s failure to act would increases the odds that the Legislature will move to take control of city finances.

“I don’t want anybody else coming in and taking over this city,” said Gloria Martin-Roberts, the council president. “That’s not what America signed up for.”

On July 19, the council spurned the proposal from the Act 47 consultants, marking the first time a program participant has done so. As with that plan, Thompson sought the incinerator’s sale and a lease of the municipal parking system. She also proposed a possible commuter tax. Her plan didn’t cover all the debt tied to the waste-to-energy plant overhaul.

Public Concerns

During the council’s deliberations before the vote, about a dozen members of the public weighed in, mostly to support Thompson’s proposal as a way to avert bankruptcy or a legislated takeover. Others raised concern about ceding power to the state.

The state stood ready to provide more than $15 million if an acceptable blueprint was passed, Corbett said in a letter. He included an $8 million incinerator-improvement grant and a $5.67 million loan to fix up city sewers. He also said support for the fire department would rise fivefold to $2.5 million a year.

Corbett suggested he would back a legislative move to strip city officials of their ability to make “irresponsible” decisions, in the Aug. 23 letter to Thompson. “The commonwealth will not bail out the city,” he said.

Harrisburg’s crisis has affected both Dauphin County, which also backed some of the incinerator debt, and bond insurer Assured Guaranty Municipal Corp., which has made payments the city skipped.

Harrisburg’s options are more limited than municipalities such as Central Falls, Rhode Island, which sought court protection on Aug. 1. The capital is barred from declaring bankruptcy before July, according to a Pennsylvania law that also calls for the city to lose state funds if it does.

Councilman Kelvin Summerford, who supported the mayor’s plan, said its defeat further clouds the city’s outlook.

“You ask me what do I do next,” he said in an interview after the vote. “I have no idea.”

To contact the reporters on this story: William Selway in Washington at wselway@bloomberg.net; Romy Varghese in Philadelphia at rvarghese8@bloomberg.net.

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

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