–Updating 16:18 ET Story With New Statement By Council Members

By Jon Hurdle

PHILADELPHIA (MNI) – Pennsylvania Gov. Tom Corbett on Friday named
a receiver to draw up a financial recovery plan for the City of
Harrisburg in the latest attempt to rescue the state capital from more
than $300 million in debt that threatens it with bankruptcy, asset
sales or deep service cuts.

Corbett filed a petition with the Commonwealth Court for David
Uncovic, a lawyer and public finance expert, to be appointed as a
receiver to oversee a financial overhaul of the city that cannot meet
all its obligations as the primary guarantor of debt on a city trash
incinerator.

Uncovic is charged with developing a fiscal recovery plan within 30
days of being appointed, and submitting it to the court and city and
state officials.

Harrisburg has been closely watched by municipal bond investors who
fear it may make a rare Chapter 9 municipal bankruptcy filing,
triggering filings by other cities whose finances have been hurt by
falling revenue in the economic downturn.

Bankrupcty is the option favored by a majority of the city council
who voted in October to file for Chapter 9. That initiative has been
opposed by the mayor and state and county officials, and its legality is
due to be determined by a bankruptcy judge on Nov. 23.

The same four members of Harrisburg’s seven-member council have
repeatedly rejected restructuring plans put forward by Mayor Linda
Thompson, and by state officials, who have overseen Harrisburg’s
finances since declaring it a “distressed city” in December 2010.

The council on Nov. 14 rejected the mayor’s latest proposal and so
has no further role to play in the financial restructuring process
because it did not approve a plan within the time set by state law, said
Thompson’s spokesman, Bob Philbin. “They are completely out of the loop
on this,” he said.

Corbett, a Republican, said the receiver was needed to move forward
on restructuring, which has been blocked by the council for many months.

“The city’s failure to come to an agreement on an acceptable
recovery plan has forced the commonwealth to take this action,” Corbett
said in a statement on the receiver’s appointment. “As more time goes by
without action, the city’s financial situation continues to get worse.”

The city’s trash incinerator, or Resource Recovery Facility (RRF),
has accumulated around $310 million in debt through successive
renovations and refinancings since it was built in the 1960s. Its owner,
the Harrisburg Authority, has been unable to meet all payments on its
bonds, leaving the city on the hook as the primary guarantor of the
debt.

In addition, Harrisburg has struggled to meet both payroll and
payments on its own general obligation debt. The incinerator debt is
about five times the city’s annual operating budget.

Assured Guaranty, which insures the RRF debt, said on Nov. 10 it
had offered concessions toward $26 million of the so-called stranded
debt remaining after the incinerator is sold and city parking garages
are leased, as contained in a recent restructuring plan.

In a letter to Mayor Thompson, the bond insurer said it was
“disappointed” when the council demanded an additional $100 million in
concessions.

“Assured Guaranty has attempted for over two years to reach a
viable solution with absolutely no cooperation from the City Council,”
the letter said.

Certain council members continue to blame Assured Guaranty for the
city’s financial situation, the company said, adding that it has saved
the city $13 million in financing costs.

But the four council members renewed their attack on Assured
Guaranty, attacked the appointment of a receiver, and said bankruptcy in
which all stakeholders would contribute is the only solution to the
city’s problems.

Councilpersons Eugenia Smith, Wanda Williams, Susan Brown Wilson
and Brad Koplinski issued a statement late Friday, calling on Mayor
Thompson to back a bankruptcy filing.

“Bankruptcy is the only option that will allow for a global
solution with shared pain by all stakeholders — that was made clear
when AGM stopped attending negotiation sessions for the consent
agreement last week,” the statement said.

The city’s finances can only be repaired by a combination of new
revenue and debt forgiveness, the statement said. “The state should come
to its senses and start to become part of the solution and not part of
the continuing problem.”

** Market News International – Philadelphia **

[TOPICS: M$U$$$,MAUDS$]