Harrisburg Leaders Debate Plans as Pennsylvania Takeover Looms

Harrisburg City Council members proposed taxes they can’t enact and debt forgiveness to repair municipal finances as they searched for agreement to head off a state takeover, which would be a first for Pennsylvania.

Ideas raised at a meeting yesterday of the council, Mayor Linda Thompson and a state official included earlier proposals such as commuter and sales taxes, as well as concessions from Dauphin County and bond insurer Assured Guaranty Municipal Corp. The mayor and her council opponents agreed on a starting point for talks to come up with a fiscal rescue plan that has eluded them for months, leading Governor Tom Corbett on Oct. 24 to put in motion the process that may lead to a state takeover.

Leaders of Pennsylvania’s capital city must give the state a proposed course of action by Nov. 14 for its approval ahead of a final Nov. 25 deadline. If Pennsylvania rejects the plan, it may put the city in the hands of a receiver empowered to implement measures without the council’s approval.

While city officials grapple with the fiscal issues that divide them, the state’s Community and Economic Development Department is working on a so-called emergency-action plan, to be released Nov. 3. That proposal would deal with short-term problems and ensure the continuation of vital functions such as paying employees and providing for public safety, Fred Reddig, executive director of the state’s Center for Local Government Services, said at the meeting.

Forgiveness Proposals

Councilwoman Susan Brown-Wilson said Dauphin County, which includes the city, and Assured Guaranty should each provide it with $7 million for the next five to 10 years. She based that assertion on the involvement of both in the municipality’s obligations, the burden of which led four council members to seek bankruptcy court protection for the community of 49,500.

The state capital faces debt five times its general-fund budget because of an overhaul and expansion of an incinerator that hasn’t generated enough revenue to cover the obligations incurred by the work.

Harrisburg guaranteed about $242 million of debt related to the incinerator project, with $65 million of it overdue, according to an Oct. 11 bankruptcy filing, the first for a U.S. capital in at least 40 years. Dauphin County and Assured Guaranty backed the debt and made payments the city skipped.

“County leaders and Assured Guaranty should have known the incinerator deal was risky,” said Wanda Williams, the councilwoman who called for a commuter tax.

$100 Million Knockoff

Councilman Brad Koplinski said the county and Assured Guaranty should knock $100 million off the city’s debt, and the state should let the county impose a 1 percent local sales tax.

State legislators have barred Harrisburg from implementing a commuter tax, and lawmaker approval is needed for a sales tax.

The council had rejected proposals by state consultants and Thompson that would have sold assets to repay creditors while raising property taxes on residents, 29 percent of whom live in poverty. It voted 4-3 to declare bankruptcy to ward off state action. Corbett and Thompson, joined by the county, have challenged the filing, whose validity will be considered at a Nov. 23 hearing before a federal judge.

“If the bankruptcy is allowed to proceed, I feel that unfortunately it’s the most beneficial option, because it will allow us to get the city out from under its debt,” Koplinski said at the meeting.

In a rare show of consensus, Thompson and council members agreed to use a recovery plan proposed by state consultants as a starting point for future negotiation. The accord drew applause from people attending the public meeting, held at the Harrisburg Hilton Hotel to accommodate an unusually large audience.

Creditors including Assured Guaranty will be meeting in private with city officials Nov. 7, Thompson 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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