The Hamilton, Bermuda, bond insurer, which was on the hook for $194.7 million, last December hired a lobbying firm in Pennsylvania for the first time, according to state records. Greenlee Partners met privately with lawmakers and Republican Governor Tom Corbett. Legislators empowered Corbett to name a financial receiver and prohibited the city from filing for bankruptcy. Harrisburg, a capital city of 49,500 where 29 percent live in poverty, has no lobbyist.
“There was no one advocating for the city of Harrisburg,” said Councilman Brad Koplinski. “The city did feel outgunned.”
As local governments cope with five years of declining revenue, according to the National League of Cities, insurers who back their debt aim to contain losses. Defaults in the $3.7 trillion municipal-bond market totaled a record $24.6 billion in 2011, according to Richard Lehmann, publisher of the Distressed Debt Securities Newsletter. Bond insurers don’t want to get stuck with the cost.
“Assured doesn’t want the investment world to think it’s OK to nick the insurer,” said Alan Schankel, director of fixed- income research at Janney Montgomery Scott LLC in Philadelphia. “They don’t want the landslide to start.”
In Pennsylvania, Assured wasn’t alone in lobbying, for which it paid $62,482 from last December through September, state records say. Ambac Assurance (ABKFQ), which insures $64.9 million of general-obligation debt on which Harrisburg nearly defaulted, hired an advocate in June and spent $10,081 through September. Lobbying cost MBIA Inc.’s National Public Finance Guarantee $7,500 in September, according to state records.
Republican Senator Jeffrey Piccola, who led the legislative response to Harrisburg’s fiscal struggles, said Assured’s lobbyist provided details on the city’s debt deals.
“That’s one of the main roles of lobbyists, is to be a conduit for information,” Piccola said in a telephone interview. Since 2004, Greenlee donated $25,061 to Piccola’s campaigns, according to the Helena, Montana-based National Institute on Money in State Politics.
Church and Wal-Mart
Greenlee -- based a block from the Capitol -- represents entities including the Archdiocese of Philadelphia, Wal-Mart Stores Inc., and Range Resources Corp. It also works for Dauphin County, which along with Assured is suing Harrisburg over missed bond payments. The firm this year has recorded $104,883 in lobbying expenses, including gifts to state officials, according to its disclosures.
Representative Glenn Grell, a Republican who helped write the receivership bill, said while he talks ``to Greenlee folks all the time,'' he didn't discuss that measure. Since 2004, Greenlee has given $1,250 to his campaigns.
National in September hired Vincent Galko, a senior vice president for Washington-based Mercury, a public relations and lobbying firm. Galko worked on campaigns for Republican candidates, including Corbett, his company profile says. Galko, with Greenlee co-founder Stanley Rapp, was named a top Republican “Pennsylvania Influencer” in 2010 by Politics magazine.
Ambac’s lobbyist is Philip English, a former Republican congressman for Pennsylvania who works for law firm Arent Fox LLP, based in Washington.
Rapp, Galko and English didn’t return calls for comment. Ashweeta Durani, an Assured spokeswoman, declined to comment on its Pennsylvania lobbying, as did Michael Fitzgerald for Ambac and Kevin Brown for National.
Harrisburg was trying to file for bankruptcy without selling assets, cutting spending or raising taxes, which would have been a “bad precedent” for insurers, said Mark Palmer, an analyst for BTIG LLC, a New York firm that provides institutional brokerage and fund services.
Left unanswered is whether it might have been the best course for residents.
“This is a really good example of how the public interests are overshadowed by a special interest,” said Edwin Bender, executive director of the National Institute on Money in State Politics. Legislators may lack “competing arguments or competing information, when there’s so much information on something as detailed as a bankruptcy from one side.”
Harrisburg’s troubles stem from a trash-to-energy facility that doesn’t generate enough revenue to pay off the debt from an overhaul and expansion. Harrisburg started skipping payments in 2009 and now owes $310 million, including penalties to Assured Guaranty and Dauphin County, which made payments after Harrisburg failed to meet its obligations.
Meeting the Governor
Rapp, Assured’s lobbyist, met with state consultants assigned to craft a recovery plan for the city, with administration officials, and with Corbett himself at the governor’s residence in May, according to redacted e-mails obtained by citizen group Debt Watch Harrisburg in a records request. Greenlee gave $51,830 to Corbett’s campaigns since 2004.
“This was not a meeting simply between Stan Rapp and the governor,” said Kelli Roberts, a spokeswoman for Corbett, in an e-mail. “There were a number of people associated with Dauphin County included in this specific meeting. It is not unusual for the governor to listen to various sides of an issue and be open to other opinions.”
On June 21, Harrisburg City Council members voted 4-3 to prepare for bankruptcy, and members of the Republican-dominated Legislature acted. Amid a flurry of bills before the session ended June 30, they barred Harrisburg from filing until July 2012.
The Harrisburg measures were “ramrodded through the legislature,” said Koplinski, the councilman. “They did not necessarily take the time to study the issue.”
Piccola said he learned about bankruptcy during the year.
“The history of municipal bankruptcies is devastating for those involved,” said Piccola. “Quite frankly, it would have sent the wrong message about Harrisburg, the commonwealth and the region.”
The City Council nonetheless authorized a bankruptcy filing Oct. 11. While lawyers for Corbett and the insurers contested it, legislators on Oct. 19 passed the law empowering Corbett to name a receiver.
The official, David Unkovic, will develop a recovery plan and doesn’t need the consent of elected officials to implement its provisions, such as asset sales.
Senator John P. Blake, a Democrat from Archbald, told colleagues on the floor that the bill protected “moneyed interests.”
The measure limited Harrisburg’s options while benefiting bond insurers, he said in a telephone interview.
“If the city had declared bankruptcy, I’m not sure they would have been made whole,” he said.
Roberts, Corbett’s spokeswoman, said that a Harrisburg bankruptcy would have had an “ill effect” on the entire region.
“The motivating factor behind the decisions and choices made by Governor Corbett has always been, and will always be, what is in the best interest of Pennsylvanians,” she wrote in an e-mail.
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