Harrisburg deserves a bright future

August 27, 2013

A debt recovery plan for Harrisburg, Pennsylvania was filed on Monday after a year of negotiations with creditors, unions and other stakeholders. The plan’s most important attribute is that it saves Pennsylvania’s capital city from declaring bankruptcy and it may fiscally stabilize the municipality for years to come.

The plan includes an extension of maturity of general obligation bonds and a reduction in labor costs through 2016. The city will still be responsible for substantial payments on its general obligation bonds. In 2013, the debt payment is set at $5,970,000 and at $7,670,000 for every year from 2014 through 2016.

The receiver has estimated that the city will also pay $3 million per year from 2013 through 2016 on existing loans or leases for equipment and short-term borrowings. This equals about 17 percent of the estimated general fund revenues of $60 million for 2014. This is a crushing debt burden for any municipality, but projections show it is sustainable through 2016 (page 73).

The plan is expected, starting in 2014, to receive general fund savings of approximately $2.4 to $2.7 million per year in labor concessions for the police union and AFSCME. This is a substantial concession, though the firemen’s union has not yet agreed to participate.

According to the Patriot News, “residents of Harrisburg would see no tax increases other than their already-increased Earned Income Taxes remaining at the 2 percent rate approved last year by City Council. They would also see metered and garage parking rates go up. Metered rates would increase to $3 per hour from the current $1.50 per hour.”

The city, under the plan, will establish three 501c(3) non-profits to repair infrastructure, generate economic development and establish a trust for retirement healthcare benefits. The funding would come from several places, including the parking garage transaction and possible fuel tax revenues, if the state legislature agrees.

As expected, the debt-laden incinerator in Harrisburg will be sold to the Lancaster County Solid Waste Management Authority. LCSWMA was chosen from five bidders and has held discussions with lenders and rating agencies. It intends to issue tax-exempt debt to complete the acquisition valued between $126 and $132 million. LCSWMA will be supported in the deal by a purchase agreement with the state to buy electricity and steam from the waste-to-energy component of the facility. The facility’s bond insurer Assured Guaranty and Dauphin County are expected to recover approximately $210 million of the $290 million debt that they are owed and may possibly recoup more over time.

Harrisburg’s other significant asset is a set of 10 public parking garages and five public parking lots, with approximately 9,100 parking spaces owned with the Harrisburg Parking Authority (“HPA”). It is expected that nine of the public parking garages and four of the public parking lots will be included in a lease transaction. The current revenues from these facilities are pledged to secure approximately $106 million of outstanding tax-exempt bonds issued by HPA. Revenues to the city, beyond debt repayment, from these assets have been diminishing over the last several years from $5 million in 2008 to $250,000 in 2012.

The debt plan will lease these facilities for forty years to a modified public private partnership, which will be structured with public ownership of the facilities and private management. The receiver negotiated a long-term contract with the state government for the lease of a significant number of parking spaces and negotiated with Dauphin County and AGM to provide credit enhancement for a portion of the proposed tax exempt bond issue that will refinance current parking bonds. The city will receive substantial up-front cash in the deal that will go in part to paying off incinerator creditors.

Harrisburg now has a solid foundation for the city to begin rebuilding.

From the debt plan:

What then are the key components of the Harrisburg Strong Plan?

  • A balanced budget in 2013.
  • The expectation of three additional balanced budget years, i.e., through 2016
  • A comprehensive resolution to the City’s historic incinerator-related financial obligation; going forward the City will have no responsibility in the future to pay for any of the hundreds of millions of dollars of liabilities for incinerator-related debts
  • Ridding the City of its incinerator debt problems without requiring any increase in the real estate property tax rate
  • $5.0 Million to serve as “working capital” and to pay down high levels of City payables owed to providers of goods and services.
  • The funding of up to $10 million to be made available over the next several years to foster economic development and investment within the City
  • The creation and funding of a trust fund to begin to address unfunded public employees post-retirement health care costs for active and retired city workers and the funding of the trust with up to $6.0 Million
  • A meaningful reduction of City labor costs, through the cooperation of Harrisburg’s public unions, and their agreement to material modifications to their labor contracts through 2016.
  • A reworking of the City’s obligations owed to the bondholders and creditors who have funded the City’s general operations – i.e., the “general obligation” debts as opposed to incinerator-related obligations. These modifications to the indebtedness incurred as part of the City’s normal operations will allow the indebtedness to be repaid over a longer period which the City can afford.


Pennlive: Harrisburg debt plan released

State of Pennsylvania: Harrisburg Act 47 documents

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