Harrisburg Judge ‘Is Inclined’ to Approve Receiver Plan

The receiver for Harrisburg, Pennsylvania, should be allowed to try to sell or lease the city’s most valuable assets in a bid to solve its financial crisis, a judge said.

“I am inclined to let him try,” state court Judge Bonnie Leadbetter said at the end of hearing today. Leadbetter said she won’t sign a final order approving the receiver’s plan until after reading arguments filed by opponents.

Unless something from the papers changes her mind, she will approve the plan proposed by receiver David Unkovic, chief lawyer for the Pennsylvania economic development department. The plan has split the insolvent city’s elected officials, with Mayor Linda Thompson in support and the city controller, treasurer and president of the council opposed.

Unkovic is “not imposing his will on anyone,” Thompson said in a telephone interview from Harrisburg on Bloomberg Television. “I’m calling on council to settle down and realize bankruptcy is not a panacea here,” she said.

Leadbetter said she was inclined to approve the plan because Unkovic promised he wouldn’t pursue a final transaction without returning to court for further approval. Unkovic was appointed under a process approved by the state legislature that bans Harrisburg and other similar-sized cities from filing bankruptcy until July.

Some opponents said the plan calls for selling the assets without first trying to force creditors to accept less than the face value of their debt. A citizen’s group filed court papers claiming the plan is based on an unconstitutional state law that gives too much power to Unkovic.

Wall Street ‘Windfall’

“Privatization is the oft-touted term, the results of which time and again result in a windfall to Wall Street and politically connected insiders; all to the detriment of states and local government, which are stripped of their assets,” Council President Wanda Williams, City Controller Dan Miller and City Treasurer John R. Campbell said in court papers filed yesterday.

Harrisburg, a city of 49,500, faces more debt than it can afford to pay, mainly because of more than $300 million in bonds tied to an incinerator that doesn’t generate enough revenue, Unkovic said in court today.

To raise money, Unkovic has asked private businesses to submit proposals for buying or leasing three types of city assets: the power-generating incinerator, parking garages and the city’s water and sewer system. Between five and 10 entities have signed confidentiality agreements related to those so-called requests for proposal, Unkovic said today in court.

Bankruptcy Ban

Unkovic was appointed under a process approved by the state legislature that bans Harrisburg and other similar-sized cities from filing bankruptcy until July.

A bid by the city council to put the city into bankruptcy was dismissed on Nov. 23 by U.S. Bankruptcy Judge Mary D. France in Harrisburg, saying it wasn’t authorized by state law. The city council has filed an appeal related to that dismissal.

Unkovic said he has not yet started negotiating with the city’s biggest creditor: bond-insurer Assured Guarantee Municipal Corp., a unit of Assured Guarantee Ltd. He won’t start talking to Assured, or to Dauphin County, which is also obligated to cover the bond payments, until the he reviews the proposals to buy or lease the city assets.

After he knows how much the assets are worth, Unkovic can calculate how much of the more than $300 million in incinerator debt will be left “stranded,” or unpayable, he said in court.

‘Premature to Negotiate’

“At this point it is premature to negotiate over how to deal with that debt,” he said.

Unkovic has also not determined whether he will sue anyone involved in the issuance of the incinerator debt, which was issued between 1998 and 2003.

State law gives the receiver the power to impose his plan on city officials without their consent after winning approval from a state judge. The law doesn’t let him break union or other contracts.

The receiver case is C. Alan Walker V. City of Harrisburg, 569MD2011, Pennsylvania Commonwealth Court (Harrisburg) The bankruptcy case was In re City of Harrisburg, Pennsylvania, 1:11-bk-06938, U.S. Bankruptcy Court, Middle District of Pennsylvania (Harrisburg).

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