What Harrisburg learned while waiting to file for bankruptcy
Last year, muniland watched as the mayor, city council members and state legislature went through a tortuous period of fighting over filing municipal bankruptcy for Harrisburg, Pennsylvania. The city council filed a bankruptcy petition, but the mayor objected. Then the legislature passed a law that denied Harrisburg the right to file until November 30, 2012. The bankruptcy judge threw out the bankruptcy petition and the governor appointed a receiver to take control of the city’s finances.
The first-state appointed receiver, the seasoned bond attorney David Unkovic, worked for about six months and then resigned from his position because he felt he was being obstructed in his efforts. He testified to the state senate about the substantial problems with the city’s debt issuance. Roxbury News captured his testimony about the cronyism and his recommendations to legislators:
The delay that occurred last year gave Unkovic enough time to review the bond offerings that pushed the city into insolvency. Unkovic said in his testimony:
You need a criminal prosecutor to get all the emails [of the bond deals]. There was certainly a disdain for the law. These deals stunk like a kettle of rotten fish.
Joseph N. DiStefano of the Philadelphia Inquirer wrote a piece about Unkovic’s recommendations for changing state laws to protect taxpayers, including banning swaps, when municipal debt is issued:
Prohibit local governments and authorities from entering into any new interest-rate swap agreements. Reverse ex-Gov. Ed Rendell’s 2003 swaps bill that Unkovic, state Treasurer Jack Wagner, and other critics contend have cost Pennsylvania cities millions through failed agreements with Wall Street banks that boosted borrowing costs, instead of reducing them as expected.
It is likely that the new receiver, William Lynch, will use the threat of filing bankruptcy, which is permissible as of November 30, to force concessions from big creditors to Dauphin County and Assured Guaranty, the bond insurer. He is already close to selling off the incinerator that caused the city’s troubles in the first place, and to leasing the city-owned parking lots.
Somehow Harrisburg will claw its way back to solvency. However, the most important outcome of the city’s troubles may be Unkovic’s advice. The state would benefit by adopting his recommendations and avoiding more disasters like Harrisburg in the future.