Oct. 1 (Bloomberg) -- Harrisburg Mayor Linda Thompson requested enrollment in Pennsylvania’s recovery and oversight program for distressed municipalities, saying the capital city stands “on the precipice of a full-blown financial crisis.”
Harrisburg faces “imminent and inevitable” defaults on about $44 million in bond payments due by Dec. 15, according to Thompson’s application for the state’s Act 47 recovery program. The city of 47,000 will miss payroll within a month, as well as its payment to the police pension fund due by Dec. 31, unless it obtains short-term loans, the application says.
Harrisburg officials have been weighing bankruptcy after the city missed debt payments for a trash-to-energy incinerator. Under Act 47 protection, Pennsylvania would help the city devise a recovery plan and give it priority in seeking state aid. The designation might also bolster the city’s standing in the credit markets through guarantees of financial support, Thompson said.
“This is a step forward for the city of Harrisburg with the full knowledge that there are many difficult steps to come,” Thompson, who took office in January, said in an e-mailed statement after a press conference with Governor Edward Rendell at City Hall.
The application comes two days after City Council members voted to reject a state-funded financial adviser and to hire lawyers and other professionals for advice on entering bankruptcy protection. Thompson and Rendell oppose bankruptcy.
Harrisburg has missed about $8 million in debt-service payments this year on $282 million of bonds issued in connection with the incinerator, which was built in the 1960s and is owned by the independent Harrisburg Authority. The city expects to default on payments due today and on Nov. 1, Dec. 1 and Dec. 15, according to the application.
The seat of the sixth most-populous U.S. state’s government faces lawsuits over the debts from its home county of Dauphin and Assured Guaranty Municipal Corp., a bond insurer.
“While the Thompson administration considers bankruptcy the option of last resort to restructure the city’s debt, if no other option is pursued it is likely that the filing of a municipal debt readjustment plan pursuant to Chapter 9 of the Bankruptcy Code will be inevitable,” the application says.
Harrisburg, if accepted into the Act 47 program, would join 19 communities, including Pennsylvania’s second-largest city, Pittsburgh, according to the state Department of Community and Economic Development website.
Under state law, the department must hold a hearing on Harrisburg’s application within two weeks, and determine whether it qualifies for the program within another 30 days, said Gary Tuma, a spokesman for Rendell. The governor, a second-term Democrat who leaves office at year-end, supports Thompson’s Act 47 application, Tuma said.
“I think the mayor has taken a responsible action in pursuing this course,” Rendell said at the press conference. “This is a difficult challenge. Everyone has to leave their agenda at the door and work out something that makes sense to restore the city’s credibility.”
Amy Richards, a spokeswoman for Dauphin County, declined comment in an e-mail.
Harrisburg’s action “is a positive first step to develop a restructuring plan that allows the city and authority to meet their obligations,” Assured said in a statement.
“I think it’s a really positive development,” Alan Schankel, managing director of Philadelphia-based Janney Montgomery Scott LLC, which oversees $13 billion in fixed-income securities, said in a telephone interview. “It’s the only way to get above all this political infighting.”
Gloria Martin-Roberts, president of the seven-member City Council and an opponent of bankruptcy, endorsed Thompson’s move.
“We’ve just had this stalemate for too long,” Martin-Roberts said in a telephone interview from her home in Harrisburg today. “We need to move the city forward.”
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