Harrisburg’s leadership shortage

By Cate Long
November 14, 2011

Harrisburg is a town that’s been crushed by debt and years of incompetent management. The city has been led by a mayor, Linda Thompson, who is unable to work with a majority of her city council and who will likely find her role greatly diminished as the state takes fiscal control of the insolvent city. I’m not sure that I’ve ever seen a politician who has so little control over the affairs of her city. Edith Honan and Kristina Cooke of Reuters did an outstanding backgrounder about the level of dysfunction among the Harrisburg’s political class:

Prayers notwithstanding, [Linda] Thompson and [Comptroller] Dan Miller, the city’s top financial official, refuse to speak to one another, even as the city they lead continues hemorrhaging money. Thompson characterized Miller as a “political opportunist who will stop at nothing to accomplish his self-centered ambitions.” Miller, who plans to challenge Thompson for mayor in 2013, said he considers Thompson “paranoid,” “not well educated” and “a phony.”

His words seem kind compared with those offered by four former Thompson aides. They told the local newspaper that the mayor isn’t fit to hold office.

As Harrisburg proceeds towards state receivership and Chapter 9 bankruptcy, the mayor rarely displays a full understanding of the financial condition of the city. I wrote previously about her lack of knowledge of the amount of “stranded debt” the city would have after selling its most valued assets. I’ve seen her resist numerous calls for the completion of a forensic audit of the city incinerator, which is where most of the debt has accumulated. This is important because it’s not clear that all the dealings around the project  were on the up-and-up. The mayor’s campaign manager served as chairman of the incinerator authority until March 2010, and some have suggested that she may be trying to protect incompetence, or perhaps worse. In addition, his law firm had substantial billings to the incinerator authority.

Mark Schwartz, the attorney for the majority of the Harrisburg City Council, released documents today that show he has petitioned the SEC and IRS to investigate if the bonds issued for the incinerator really meet the conditions of a tax-exempt debt. It’s an interesting strategy because it pushes the facts and conditions about the incinerator debt and derivatives out into the open. When institutions operate in the dark, one never knows what may be found. Schwartz also released a long list of law firms that have been involved in underwriting the incinerator’s debt between 1993 and 2003. Seemingly every law firm in Harrisburg has been involved in these deals at one point or another.

Pennsylvania has a long and sordid history of political corruption. The governor, Tom Corbett, will soon approach the Commonwealth Court to seek appointment of a receiver to take over the city. This receiver would benefit from endorsing the Chapter 9 bankruptcy filing, which a majority of the city council filed in October. Chapter 9 protects the city from creditor lawsuits, and, more importantly, puts the bond guarantors — Assured Guaranty, Dauphin County and Covanta —  in a subordinate position on their claims. Harrisburg is morphing from a minor debacle to a full-on money fight. The city and state need as much protection as they can get.

Further:

Cravath Swaine and Moore: Evaluation of Alternatives Available to the City of Harrisburg to Address Its Current Financial Situation

today’s the day harrisburg: A Process Designed to Fail

today’s the day harrisburg: Harrisburg City Council was excluded from the list of recipients

Bloomberg: Miller on Harrisburg, Jefferson County Bankruptcies

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