Harrisburg Receiver Releases Plan to Save Insolvent City
The receiver for Harrisburg, the insolvent capital of Pennsylvania, said he agreed with creditors owed about $362.5 million to a plan to end the city’s fiscal crisis without the need for another bankruptcy filing.
The city would sell its waste-to-energy plant and lease its parking system, the state-appointed receiver, William B. Lynch, said yesterday in a copy of his plan sent to reporters and filed with Pennsylvania’s Commonwealth Court.
The amount raised by the sale and the lease wouldn’t fully repay the claims of Harrisburg’s largest creditors. They might receive more funds later, according to the plan. Municipal workers also agreed to make concessions.
“Providing meaningful solutions for one set of interests necessarily means that others need to agree to some accommodations,” Lynch said in the filing. “This has been true for all the significant parties or interests that have come together to forge a workable solution for Harrisburg’s future.”
After the lease and sale of assets, bond insurer Assured Guaranty (AGO) Municipal and Dauphin County would recover at least $210 million on claims totaling $298.5 million.
They would receive proceeds from a fuel tax, if authorized by the state legislature, and from future parking revenue to satisfy the remainder.
The insurer and county covered debt payments on the incinerator the city skipped starting in 2009.
“This is a good agreement for everyone involved and, for the most part, everybody is close to being made whole,” Dauphin County Commission Chairman Jeff Haste said in an e-mailed statement. “We should also keep in mind that we’re doing this without the city going into bankruptcy, which would have been very costly to the entire region.”
A proposed resolution to Harrisburg’s crisis comes after a record bankruptcy filing by Detroit and as rates in the $3.7 trillion market for state and local debt have risen from generational lows.
Detroit filed the biggest U.S. municipal bankruptcy on July 18 after decades of decline left it unable to pay its debts and provide needed services. Detroit owes about $18 billion to creditors, according to its emergency manager.
Lynch has been negotiating with all of the Harrisburg groups since he took over last year, following the resignation of lawyer David Unkovic. The rescue plan is designed to deal with a municipal debt burden of about $362.5 million, or about seven times the city’s general-fund budget.
The proposal needs approval by the state court judge overseeing the city’s receivership case, Bonnie Leadbetter.
By settling with creditors, Lynch was able to keep the city from filing a second bankruptcy case.
In 2011, the City Council defied the mayor and Pennsylvania state officials by placing Harrisburg under federal bankruptcy court protection. The case was dismissed when the judge concluded that the city of almost 50,000 didn’t have authority from the state.
“It is hoped that in the eyes of those looking for a template for solving persistent municipal distress, Harrisburg will be seen as a beacon,” according to the plan.
The City Council in an e-mailed statement said Lynch’s blueprint “accomplishes the many things we have fought so hard for.”
Harrisburg’s crisis stemmed from an overhaul and expansion of the incinerator, which doesn’t generate enough revenue to cover the debt. The project proceeded even though the idea that the facility could pay for itself was “ill-conceived,” Lynch said in his plan.
He said he will consider “every measure available” to compel payment from those involved in the “highly imprudent” transactions. Proceeds would go to the city, county and Assured, a unit of Hamilton, Bermuda-based Assured Guaranty Ltd., Lynch said.
Ashweeta Durani, an Assured spokeswoman, said in an e-mail that the company “is committed to working cooperatively” on a plan “that both restores the city’s fiscal health and respects the rights of creditors.”
The Pennsylvania Economic Development Financing Authority, a state entity, would take over parking garages and outside lots under a 40-year lease from the Harrisburg Parking Authority, the city agency that owns them.
The state authority would sell tax-exempt bonds to be repaid from lease revenue. The deal might generate at least $258 million. Dauphin County and Assured would back a portion of the debt.
Standard Parking Corp. (STAN), based in Chicago, would run Harrisburg’s 9,100-space parking system. AEW Capital Management LP, a Boston-based property manager, would oversee the real estate involved. Both would receive fixed fees.
Lancaster County Solid Waste Management Authority would buy the incinerator for at least $126 million. Two municipal labor unions have agreed to contract changes to help save money.
Ambac Assurance, the guarantor that covered payments on Harrisburg general-obligations, would restructure the debt so the city paid a lower annual amount over a term 10 years longer than the original maturity. Harrisburg “will be seen to be respectful of the credit markets” with this arrangement, Lynch said.
Ambac didn’t immediately respond to a telephone message seeking comment left with the company’s media office.
The proposal includes provisions to fund economic development and infrastructure improvements in the city. In addition, a fund would be established to pay retiree health care. The city’s unfunded liability for other post-employment benefits, excluding pensions, was $177.8 million as of January 2010, according to an audit released in December.
A Harrisburg Authority incinerator revenue bond backed by Assured Guaranty traded Aug. 23 at an average yield of 5.5 percent, or 1.28 percentage points above benchmark debt, compared with an average yield of 5.1 percent and a spread of 1.11 percentage points on June 27, according to data compiled by Bloomberg.
A Harrisburg Parking Authority bond traded Aug. 23 at an average yield of 6.5 percent, or 3.25 percentage points above the benchmark, compared with an average yield of 6.1 percent and a spread of 3.91 percentage points on April 1.
The case is Walker v. Harrisburg Authority, 569-MD-2011, Pennsylvania Commonwealth Court, Pennsylvania (Harrisburg).