Harrisburg Receiver Ponders Sales, Tax Boost in Fiscal Plan

Harrisburg’s receiver outlined a plan to aid the Pennsylvania capital’s fiscal recovery by selling assets, raising taxes and fees, and winning concessions from municipal unions.

Receiver David Unkovic will update the proposal submitted today with more details after determining the market value of city assets, he said in the Pennsylvania Commonwealth Court submission. The court, which handles cases involving the state, has 30 days to hold a hearing and 60 days to decide on the plan.

As Pennsylvania’s first municipal receiver, named by Governor Tom Corbett under a law passed in October, Unkovick is developing a fiscal blueprint for Harrisburg’s recovery. The city of about 49,500 residents was driven into insolvency by financing an overhaul and expansion of a municipal incinerator that doesn’t generate enough revenue to cover its debt.

“The solution requires a comprehensive recovery plan that really works,” Unkovic said in the document given to the court. “Significant and difficult contributions will be required from many stakeholders. This plan is a first step.”

The state gave the receiver the power to impose his plan on city officials without their consent. It doesn’t let him break union or other contracts. Judicial approval is required before the proposed actions can be taken. Unkovic said he’s prepared to seek bankruptcy court protection for the city. The October law lets Unkovic take that step no earlier than July, after another measure banning such a move expires.

Seeking Asset Bids

Unkovic is asking for bids on parking, water and sewer systems, and the waste-to-energy incinerator run by a Covanta Holding Corp. unit. Once he has bids in hand, he would enter “serious negotiations” with creditors on any debt that wouldn’t be covered by sales or leases, he told residents in an earlier meeting. He would also seek talks with municipal unions.

The receiver aims to wrap up any sales or leases by June, according to the proposal. The city has debts of about five times its general-fund budget.

Even without the debt from the incinerator project, expenses outstrip revenue collected by the city, leaving a budget gap of more than $11 million, Unkovic said. He proposes increases in taxes such as the resident earned-income tax, property levies and fees such as for business licenses.

Skipped Payments

Harrisburg started skipping bond payments in 2009 and owes $310 million, including penalties, to surrounding Dauphin County and Hamilton, Bermuda-based insurer Assured Guaranty Ltd. (AGO)

An audit released Jan. 18 showed that Harrisburg officials and paid advisers piled debt on the incinerator even though they knew there was substantial risk that the facility wouldn’t be able to pay off the obligations. Unkovic in his proposal said he has retained lawyers to examine the transactions and may initiate civil-court actions based on their findings. He is also barring the city’s authorities from agreeing to derivative deals known as interest-rate swaps.

Some city officials, such as controller Dan Miller, said they believe bankruptcy is inevitable. A move to put Harrisburg under court protection by a majority of the City Council was rejected last year by U.S. Bankruptcy Judge Mary D. France in Harrisburg. An appeal by some council members was rejected Feb. 2 by U.S. District Court Judge Sylvia H. Rambo.

Meeting Planned

Mark Schwartz, a lawyer hired by the City Council for the bankruptcy filing, said he plans to meet with members Feb. 10 to discuss any possible actions related to Unkovic’s proposal.

“My fear is that the numbers are too far apart” in the plan, he said by telephone. The council sought the haven from creditors provided by bankruptcy because of the difficulty of meeting the city’s obligations, he said.

Whether the council can legally oppose the plan laid out today remains to be determined, Schwartz said. Last year, a judge refused to let him challenge Unkovic’s appointment at the start of the process of putting the city under a receiver.

For a plan to succeed, elected officials, unions and creditors have to be “on the same sheet of music” and see the receiver as “adding value,” Jarad Handelman, a deputy general counsel to Corbett, said last month. Handelman helped develop the October legislation. He spoke about the issues involved during a Jan. 27 conference at the University of Pennsylvania in Philadelphia.

“There has to be a belief in these local governments and in the citizenry that recovery is possible,” Handelman said. The receiver “can’t just be a reincarnation of the prior failed recovery attempts.”

Mayor Linda Thompson said by e-mail that she would comment on Unkovic’s plan later this week. City Council President Wanda Williams didn’t immediately respond to a telephone call seeking comment on the proposal.

The receiver case is Walker v. City of Harrisburg, 569MD 2011, Pennsylvania Commonwealth Court (Harrisburg).

To contact the reporter on this story: Romy Varghese in Philadelphia at rvarghese8@bloomberg.net; Steven Church in Wilmington, Delaware, at schurch3@bloomberg.net.

To contact the editors responsible for this story: John Pickering at jpickering@bloomberg.net; Mark Tannenbaum at mtannen@bloomberg.net.

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