Orange County Treasurer Tells Harrisburg Bankruptcy Has `Positive' Element
Orange County, California, whose 1994 municipal bankruptcy was then the largest in U.S. history, had some advice for Harrisburg, Pennsylvania, the state capital weighing Chapter 9 protection.
There are “positive” elements, county Treasurer Chriss Street said in an unsolicited telephone call, according to Harrisburg Controller Dan Miller, whose city’s credit is rated five levels below investment grade by Moody’s Investors Service.
“Two years after they filed, they had access to capital markets for revenue bonds; seven years after they filed, they had a double-A rating,” Miller said in a May 14 interview. “Those were pretty good results.”
Orange County, whose population of 3 million makes it the sixth-largest county in the U.S., is the home of Disneyland Resort. It lost $1.7 billion from a $7.6 billion investment pool when bets on interest rates soured. The county’s credit rating, cut to one level below investment grade during the bankruptcy, began rising in 1997, the year after it emerged from Chapter 9.
Harrisburg, a city of 47,000 and seat of the sixth most- populous U.S. state, faces debt-service payments totaling $68 million this year. The payments, mostly connected to a trash-to- energy incinerator project, are more than four times what the city raises in yearly property taxes, according to its current budget.
Harrisburg has guaranteed payments on $282 million in bonds on the incinerator, run by the Harrisburg Authority. The city has missed $6 million in debt payments since Jan. 1. Another $5.3 million in payments guaranteed by the city are due June 1, according to a schedule assembled by Management Partners Inc. of Cincinnati, a consulting firm hired to study the city’s finances as part of a state support program.
Orange County’s Street “was talking about their experience and the things he thought were a positive,” Miller said. Street told him he’d read about Harrisburg’s financial struggles in the press, Miller said.
Street said Harrisburg should try to reach a settlement with bondholders collegially, and should opt for bankruptcy before giving up assets if the negotiations don’t work.
“For Orange County, the only downside to it was the humiliation of politicians,” Street said in a telephone interview May 14. “It created a different relationship with the community, based on transparency and based on greater input in our financial affairs.”
Orange county is rated Aa2 by Moody’s and AA- by Standard & Poor’s, the third- and fourth-highest ratings, respectively.
Looking Past Expenses
Street’s assessment overlooks Orange County’s legal expenses and increased borrowing costs, said James Spiotto, a partner at the Chicago law firm of Chapman & Cutler, who’s been involved with bankruptcies or workouts of more than 400 debt financings in 35 U.S. states.
“I don’t think there was any benefit in Chapter 9,” Spiotto said in a telephone interview. “There were workers who didn’t get paid in full. There were infrastructure projects that couldn’t get done. I don’t think it did any good to the citizens.”
Harrisburg Mayor Linda Thompson and City Council President Gloria Martin-Roberts oppose seeking bankruptcy protection. They advocate selling city assets, such as its parking garages or downtown marketplace, to cover the debt service payments.
Moody’s in February downgraded Harrisburg’s general- obligation bond rating three levels to B2, five steps below investment grade, from Ba2.