William B. Lynch, the state-appointed receiver of Harrisburg, said negotiators were “very close” to agreeing on a settlement to refinance hundreds of millions of dollars of debt that the city cannot pay. Most of the debt, $345 million, was issued in connection with a big trash-to-energy incinerator project that did not turn out as planned.
“All the stakeholders involved in the sale of the incinerator are in agreement,” Mr. Lynch said Wednesday in a statement. “While they realize this may be an imperfect solution, everyone understands a cooperative solution is most certainly in everybody’s best interests.”
At a news conference on Wednesday, the mayor, Linda D. Thompson, called the deal a turning point in the city’s tortured financial history. Bondholders will be paid in full by the bond insurers Assured Guaranty and Ambac, as well as by surrounding Dauphin County, which guaranteed some of Harrisburg’s debt. The county and the two insurers will then receive a stream of repayments over the years from the revenue of existing city parking garages, expected to be heavily used by state workers.
Some in Harrisburg, a city of about 50,000, said they still thought the city would have won a better deal in Chapter 9 municipal bankruptcy and pointed to lingering long-term problems.
“All the pain is on Harrisburg city residents,” said the city controller, Dan Miller. He said Chapter 9 bankruptcy would have forced bondholders and other financial creditors to share more of the pain of the restructuring, as Detroit is proposing to do. Bankruptcy would have also allowed Harrisburg to void expensive union contracts, Mr. Miller said.
But bankruptcy was put out of Harrisburg’s reach by the state. As Harrisburg’s debt woes loomed larger in 2011, the City Council sought expert legal advice and did file a petition with the Federal Bankruptcy Court. Pennsylvania promptly passed a law making Harrisburg ineligible for Chapter 9 bankruptcy, and the judge dismissed the city’s case. That left Harrisburg with far more limited forms of restructuring assistance available under state statutes.
Robert J. Philbin, the mayor’s chief of staff, said that course had helped Harrisburg steer clear of a legal showdown that could have done lasting damage.
“A rash of municipal bankruptcy filings across the country highlighted what the damage could be,” he said, citing losses in jobs, health benefits and pensions that have been dealt out in various forms in places like Vallejo, Stockton and San Bernardino in California; Central Falls, R.I.; and Prichard, Ala.
Avoiding bankruptcy is also thought to have kept municipal bond buyers relatively bullish on the debts of other Pennsylvania cities. After Detroit proposed, in bankruptcy, to put general obligation bonds on par with retiree health benefits — all would be cut to about 10 cents on the dollar — there were reports of other Michigan cities paying a penalty of about a half-percentage point on their debt.
Harrisburg’s new debt restructuring agreement rests primarily on the sale of the incinerator, to the Lancaster County Solid Waste Management Authority. It was selected as the sole bidder in June 2012 after two other potential buyers were rejected, Mr. Lynch said.
Cory Angell, a spokesman for the receiver, said that the incinerator would fetch about $130 million, but that the exact amount would depend on market conditions when the deal is made final, probably this fall. A spokeswoman for the buyer, Kathryn Sandoe, declined to confirm the price.
The restructuring also depends on a deal to lease some city parking garages to an outside vendor and have a new state borrowing authority issue new debt to replace existing parking-authority debt. The agreement anticipates big savings on garage operations, and some of the resulting profit will be used to pay back the bond guarantors. The city would get the garages back at the end of the lease, expected to last five or six decades. Mr. Angell declined to specify the amounts, saying they would become public in October, when the city must have the terms approved by a state court.
Mayor Thompson said these transactions would “permanently absolve the City of Harrisburg, and the Harrisburg Authority, from all future liability related to the incinerator.” The authority is the independent entity that issued the incinerator bonds.
Once the incinerator debt is resolved, Ms. Thompson said the city would work to eliminate its structural budget deficit. She said the budget was “stabilized” through 2016, thanks to new revenue sources she did not identify.
This month, the city raised about $2.7 million by auctioning off some 8,000 Wild West artifacts collected by a former mayor, Stephen Reed, who had planned to house them in a museum that never came to fruition.
In addition, the city is calling on its police officers, firefighters and other municipal workers to forgo scheduled pay increases and pay part of their health insurance premiums. Mr. Angell said the city’s branch of the Fraternal Order of Police had agreed to these concessions, but the firefighters’ union and the local chapter of the American Federation of State, County and Municipal Employees had yet to vote on the proposal.
Mr. Miller, the controller, said Harrisburg had been spending more than it could afford for years. “It’s no different from Detroit, in that it’s decades in the making.” he said. “I have not seen anything yet that shows how this plan is going to work. The numbers don’t add up.”
Article source: http://www.nytimes.com/2013/07/25/us/harrisburg-sees-path-to-restructuring-debts-without-bankruptcy-filing.html?partner=rss&emc=rss