Watching Harrisburg crash and burn

April 3, 2012

We are now watching Harrisburg crash and burn. The busted Pennsylvania capital of 49,000 is crushed by $463 million in city debt and an additional $282 million in debt for the public school system. The state senator representing the area, Jeff Piccola, used his power last June to pass state legislation (Act 47 amendments) that shackled Harrisburg with accepting a receiver appointed by the governor and barred the city from filing bankruptcy until June 30, 2012.

Adhering to the Act 47 requirement that the mayor work with the city council to approve a fiscal recovery plan, Mayor Thompson fought a months-long war that resulted in her plan being rejected three times and the governor’s appointment of a receiver, David Unkovic. After the Dauphin County court approved Unkovic last November, he tried to help the city balance the budget, sell assets and negotiate with bondholders. Amid all that action, a subset of the city council, against the mayor’s wishes, filed a Chapter 9 municipal bankruptcy petition that was ultimately rejected by a federal judge as a result of Senator Piccola’s Act 47 legislation.

Harrisburg’s biggest albatross is its responsibility for the debt of the Harrisburg incinerator – a monstrosity of design and a debacle of public financing. The responsibility for this debt first lies with the city and then with Dauphin County and bond insurer Assured Guaranty.

On Apr. 2 Unkovic inexplicably announced his resignation in a letter to the governor. This followed a dramatic press conference Wednesday in which Unkovic began to name names in the Harrisburg drama, beginning with State Senator Piccola, who recently announced his retirement from electoral politics. Also among those Unkovic named was the lobbyist who had worked with the staff of Governor Tom Corbett on the legislation to place Harrisburg into receivership and bar it from filing bankruptcy. Citizen journalist Tara Leo Auchey captured the Unkovic yarn-spinning at his hastily arranged press conference:

Which leads us to another player in the true Harrisburg debt story – Senator Jeff Piccola. During Unkovic’s press conference, he referred to the closing of the Dauphin Meadows landfill and Piccola’s position on that. Now, this is another history lesson but an important one. In 1990, Senator Piccola fought against the Incinerator and fought for use of the landfill for Dauphin County trash. The State agreed and all County trash went away from the Incinerator and to the landfill. When that happened, the Incinerator lost immense value over night.

Ten years later in 2000, Piccola switched sides, dramatically and flamboyantly. He decried the landfill [as] a nuisance and joined in a community-based lawsuit to shut it down. Piccola announced the Incinerator should be used for all Dauphin County trash.

And it was. Dauphin County entered into a municipal waste agreement with the City and The Harrisburg Authority. It is because of this agreement — and only because of this agreement — that the broken, deprived Incinerator was able to get financed to get fixed, since Dauphin County would guarantee the bonds. Piccola helped make it happen.

But Unkovic didn’t stop his list of naming names there. He called out the lobbyist Stan Rapp of Greenlee Partners, who is the lobbyist for both Dauphin County and for the bond insurer AGM [Assured Guaranty]. As we discovered last Fall, Stan Rapp was part of numerous meetings with the Governor and the Governor’s representatives about Harrisburg’s Act 47 process, which eventually became the City’s takeover by the State pushed by Dauphin County officials and Senator Piccola.

When I first wrote about Unkovic last November, I mentioned that he had worked for the law firm that represents Assured Guaranty, the city’s bond insurer, for 27 years:

The local paper has already highlighted that Unkovic has direct ties to some of the creditors in the Harrisburg case. The Harrisburg Patriot News reports:

The receiver Gov. Tom Corbett named to lead Harrisburg’s fiscal recovery is deeply connected to three firms that represented bondholders and Dauphin County in the incinerator debt crisis.

David Unkovic worked for Saul Ewing in Philadelphia for 27 years. Saul Ewing represents the biggest creditor of the incinerator debt, Assured Guaranty Municipal Corp., the company that insured much of the more than $300 million in incinerator debt.

There is also an excellent video of Unkovic responding to the conflict of interest question in the Roxbury News (clicking on the small picture on the upper left will launch a video). Reuters Legal also reported on the conflict story.

Assured Guaranty recently was successful in having another Dauphin County court name an independent receiver for the city’s burdensome incinerator. What authority this second receiver has is unclear. But it seems that many of the mercenaries fighting against Harrisburg may have ties to Assured Guaranty.

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